Correlation Between BCD and AION

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

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

Diversification Opportunities for BCD and AION

0.72

Correlation Coefficient

BCD  AION

Poor diversification

The 3 months correlation between BCD and AION is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding BCD and AION in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AION and BCD 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 BCD are associated (or correlated) with AION. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AION has no effect on the direction of BCD i.e., BCD and AION go up and down completely randomly.

Pair Corralation between BCD and AION

Assuming the 90 days trading horizon BCD is expected to generate 14.16 times less return on investment than AION. But when comparing it to its historical volatility, BCD is 3.73 times less risky than AION. It trades about 0.03 of its potential returns per unit of risk. AION is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  0.14  in AION on December 26, 2024 and sell it today you would lose (0.08) from holding AION or give up 56.54% of portfolio value over 90 days.

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

BCD  vs.  AION

BCD

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BCD are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, BCD exhibited solid returns over the last few months and may actually be approaching a breakup point.

AION

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AION are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, AION exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BCD and AION

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

The idea behind BCD and AION 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..