Correlation Between Bombardier and Blue Ribbon

Can any of the company-specific risk be diversified away by investing in both Bombardier and Blue Ribbon at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Bombardier and Blue Ribbon into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bombardier and Blue Ribbon Income, you can compare the effects of market volatilities on Bombardier and Blue Ribbon and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Bombardier with a short position of Blue Ribbon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bombardier and Blue Ribbon.

Diversification Opportunities for Bombardier and Blue Ribbon

0.72

Correlation Coefficient

Bombardier  Blue Ribbon

Poor diversification

The 3 months correlation between Bombardier and Blue is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Bombardier and Blue Ribbon Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Ribbon Income and Bombardier is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Bombardier are associated (or correlated) with Blue Ribbon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Ribbon Income has no effect on the direction of Bombardier i.e., Bombardier and Blue Ribbon go up and down completely randomly.

Pair Corralation between Bombardier and Blue Ribbon

Assuming the 90 days trading horizon Bombardier is expected to generate 3.08 times more return on investment than Blue Ribbon. However, Bombardier is 3.08 times more volatile than Blue Ribbon Income. It trades about 0.11 of its potential returns per unit of risk. Blue Ribbon Income is currently generating about 0.06 per unit of risk. If you would invest  8,888  in Bombardier on September 12, 2024 and sell it today you would earn a total of  1,562  from holding Bombardier or generate 17.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Bombardier  vs.  Blue Ribbon Income

Bombardier

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bombardier are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Bombardier unveiled solid returns over the last few months and may actually be approaching a breakup point.

Blue Ribbon Income

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Ribbon Income are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Blue Ribbon is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bombardier and Blue Ribbon

The main advantage of trading using opposite Bombardier and Blue Ribbon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bombardier position performs unexpectedly, Blue Ribbon can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Blue Ribbon will offset losses from the drop in Blue Ribbon's long position.

The idea behind Bombardier and Blue Ribbon Income pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.