Correlation Between Big Bird and National Refinery

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

Diversification Opportunities for Big Bird and National Refinery

-0.81

Correlation Coefficient

Big Bird  National Refinery

Pay attention - limited upside

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

Pair Corralation between Big Bird and National Refinery

Assuming the 90 days trading horizon Big Bird Foods is expected to under-perform the National Refinery. In addition to that, Big Bird is 1.06 times more volatile than National Refinery. It trades about -0.15 of its total potential returns per unit of risk. National Refinery is currently generating about 0.14 per unit of volatility. If you would invest  21,241  in National Refinery on September 12, 2024 and sell it today you would earn a total of  5,427  from holding National Refinery or generate 25.55% return on investment over 90 days.

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

Big Bird Foods  vs.  National Refinery

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.

National Refinery

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in National Refinery are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, National Refinery reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Big Bird and National Refinery

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

The idea behind Big Bird Foods and National Refinery 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.