Correlation Between Barings BDC and Freedom Bank

Can any of the company-specific risk be diversified away by investing in both Barings BDC and Freedom Bank 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 Barings BDC and Freedom Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Barings BDC and Freedom Bank of, you can compare the effects of market volatilities on Barings BDC and Freedom Bank 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 Barings BDC with a short position of Freedom Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Barings BDC and Freedom Bank.

Diversification Opportunities for Barings BDC and Freedom Bank

0.02

Correlation Coefficient

Barings BDC  Freedom Bank

Significant diversification

The 3 months correlation between Barings and Freedom is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Barings BDC and Freedom Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freedom Bank and Barings BDC 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 Barings BDC are associated (or correlated) with Freedom Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freedom Bank has no effect on the direction of Barings BDC i.e., Barings BDC and Freedom Bank go up and down completely randomly.

Pair Corralation between Barings BDC and Freedom Bank

Given the investment horizon of 90 days Barings BDC is expected to generate 8.98 times less return on investment than Freedom Bank. But when comparing it to its historical volatility, Barings BDC is 1.2 times less risky than Freedom Bank. It trades about 0.01 of its potential returns per unit of risk. Freedom Bank of is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,035  in Freedom Bank of on September 16, 2024 and sell it today you would earn a total of  52.00  from holding Freedom Bank of or generate 5.02% return on investment over 90 days.

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

Barings BDC  vs.  Freedom Bank of

Barings BDC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Barings BDC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Barings BDC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Freedom Bank

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with Barings BDC and Freedom Bank

The main advantage of trading using opposite Barings BDC and Freedom Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Barings BDC position performs unexpectedly, Freedom Bank 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 Freedom Bank will offset losses from the drop in Freedom Bank's long position.

The idea behind Barings BDC and Freedom Bank of 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.

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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.