Correlation Between Big Bird and Packages

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

Diversification Opportunities for Big Bird and Packages

0.53

Correlation Coefficient

Big Bird  Packages

Very weak diversification

The 3 months correlation between Big and Packages is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Big Bird Foods and Packages in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Packages 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 Packages. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Packages has no effect on the direction of Big Bird i.e., Big Bird and Packages go up and down completely randomly.

Pair Corralation between Big Bird and Packages

Assuming the 90 days trading horizon Big Bird Foods is expected to under-perform the Packages. In addition to that, Big Bird is 1.68 times more volatile than Packages. It trades about -0.06 of its total potential returns per unit of risk. Packages is currently generating about -0.04 per unit of volatility. If you would invest  61,397  in Packages on December 3, 2024 and sell it today you would lose (4,638) from holding Packages or give up 7.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Big Bird Foods  vs.  Packages

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

Packages

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Big Bird and Packages

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

The idea behind Big Bird Foods and Packages 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.