Correlation Between Big Bird and Agha Steel

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

By analyzing existing cross correlation between Big Bird Foods and Agha Steel Industries, you can compare the effects of market volatilities on Big Bird and Agha Steel 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 Big Bird with a short position of Agha Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big Bird and Agha Steel.

Diversification Opportunities for Big Bird and Agha Steel

0.67

Correlation Coefficient

Big Bird  Agha Steel

Poor diversification

The 3 months correlation between Big and Agha is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Big Bird Foods and Agha Steel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Agha Steel Industries and Big Bird 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 Big Bird Foods are associated (or correlated) with Agha Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Agha Steel Industries has no effect on the direction of Big Bird i.e., Big Bird and Agha Steel go up and down completely randomly.

Pair Corralation between Big Bird and Agha Steel

Assuming the 90 days trading horizon Big Bird Foods is expected to generate 1.81 times more return on investment than Agha Steel. However, Big Bird is 1.81 times more volatile than Agha Steel Industries. It trades about 0.01 of its potential returns per unit of risk. Agha Steel Industries is currently generating about -0.09 per unit of risk. If you would invest  5,184  in Big Bird Foods on December 21, 2024 and sell it today you would lose (104.00) from holding Big Bird Foods or give up 2.01% of portfolio value over 90 days.

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

Big Bird Foods  vs.  Agha Steel Industries

Big Bird Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Big Bird Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Big Bird is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Agha Steel Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Agha Steel Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Big Bird and Agha Steel

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

The idea behind Big Bird Foods and Agha Steel Industries 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.