Correlation Between BOSTON BEER and INFORMATION SVC

Can any of the company-specific risk be diversified away by investing in both BOSTON BEER and INFORMATION SVC 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 BOSTON BEER and INFORMATION SVC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BOSTON BEER A and INFORMATION SVC GRP, you can compare the effects of market volatilities on BOSTON BEER and INFORMATION SVC 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 BOSTON BEER with a short position of INFORMATION SVC. Check out your portfolio center. Please also check ongoing floating volatility patterns of BOSTON BEER and INFORMATION SVC.

Diversification Opportunities for BOSTON BEER and INFORMATION SVC

0.81

Correlation Coefficient

BOSTON BEER  INFORMATION SVC

Very poor diversification

The 3 months correlation between BOSTON and INFORMATION is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding BOSTON BEER A and INFORMATION SVC GRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INFORMATION SVC GRP and BOSTON BEER 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 BOSTON BEER A are associated (or correlated) with INFORMATION SVC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INFORMATION SVC GRP has no effect on the direction of BOSTON BEER i.e., BOSTON BEER and INFORMATION SVC go up and down completely randomly.

Pair Corralation between BOSTON BEER and INFORMATION SVC

Assuming the 90 days trading horizon BOSTON BEER A is expected to generate 0.92 times more return on investment than INFORMATION SVC. However, BOSTON BEER A is 1.09 times less risky than INFORMATION SVC. It trades about 0.0 of its potential returns per unit of risk. INFORMATION SVC GRP is currently generating about -0.02 per unit of risk. If you would invest  32,140  in BOSTON BEER A on October 4, 2024 and sell it today you would lose (3,700) from holding BOSTON BEER A or give up 11.51% of portfolio value over 90 days.

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

BOSTON BEER A   vs.  INFORMATION SVC GRP

BOSTON BEER A

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BOSTON BEER A are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, BOSTON BEER exhibited solid returns over the last few months and may actually be approaching a breakup point.

INFORMATION SVC GRP

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in INFORMATION SVC GRP are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, INFORMATION SVC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BOSTON BEER and INFORMATION SVC

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

The idea behind BOSTON BEER A and INFORMATION SVC GRP 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.