Correlation Between Boston Beer and PACCAR

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

By analyzing existing cross correlation between The Boston Beer and PACCAR Inc, you can compare the effects of market volatilities on Boston Beer and PACCAR 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 PACCAR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Boston Beer and PACCAR.

Diversification Opportunities for Boston Beer and PACCAR

0.91

Correlation Coefficient

Boston Beer  PACCAR

Almost no diversification

The 3 months correlation between Boston and PACCAR is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding The Boston Beer and PACCAR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PACCAR Inc 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 The Boston Beer are associated (or correlated) with PACCAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PACCAR Inc has no effect on the direction of Boston Beer i.e., Boston Beer and PACCAR go up and down completely randomly.

Pair Corralation between Boston Beer and PACCAR

Assuming the 90 days trading horizon The Boston Beer is expected to generate 1.01 times more return on investment than PACCAR. However, Boston Beer is 1.01 times more volatile than PACCAR Inc. It trades about -0.15 of its potential returns per unit of risk. PACCAR Inc is currently generating about -0.22 per unit of risk. If you would invest  29,620  in The Boston Beer on September 27, 2024 and sell it today you would lose (1,320) from holding The Boston Beer or give up 4.46% of portfolio value over 90 days.

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

The Boston Beer  vs.  PACCAR Inc

Boston Beer

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Boston Beer are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Boston Beer may actually be approaching a critical reversion point that can send shares even higher in January 2025.

PACCAR Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PACCAR reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Boston Beer and PACCAR

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

The idea behind The Boston Beer and PACCAR Inc 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.