Correlation Between Big Bird and East West

Can any of the company-specific risk be diversified away by investing in both Big Bird and East West 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 East West 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 East West Insurance, you can compare the effects of market volatilities on Big Bird and East West 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 East West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big Bird and East West.

Diversification Opportunities for Big Bird and East West

0.3

Correlation Coefficient

Big Bird  East West

Weak diversification

The 3 months correlation between Big and East is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Big Bird Foods and East West Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East West Insurance 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 East West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East West Insurance has no effect on the direction of Big Bird i.e., Big Bird and East West go up and down completely randomly.

Pair Corralation between Big Bird and East West

Assuming the 90 days trading horizon Big Bird Foods is expected to under-perform the East West. But the stock apears to be less risky and, when comparing its historical volatility, Big Bird Foods is 1.15 times less risky than East West. The stock trades about -0.14 of its potential returns per unit of risk. The East West Insurance is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,771  in East West Insurance on September 14, 2024 and sell it today you would earn a total of  729.00  from holding East West Insurance or generate 19.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	76.19%
Values	Daily Returns

Big Bird Foods  vs.  East West Insurance

Big Bird Foods

Risk-Adjusted Performance

0 of 100

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

East West Insurance

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in East West Insurance are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, East West sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Big Bird and East West

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

The idea behind Big Bird Foods and East West Insurance 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.