Correlation Between BCE and Big Rock

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

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

Diversification Opportunities for BCE and Big Rock

0.54

Correlation Coefficient

BCE  Big Rock

Very weak diversification

The 3 months correlation between BCE and Big is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding BCE Inc Pref and Big Rock Brewery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big Rock Brewery and BCE 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 BCE Inc Pref are associated (or correlated) with Big Rock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big Rock Brewery has no effect on the direction of BCE i.e., BCE and Big Rock go up and down completely randomly.

Pair Corralation between BCE and Big Rock

Assuming the 90 days trading horizon BCE Inc Pref is expected to under-perform the Big Rock. But the preferred stock apears to be less risky and, when comparing its historical volatility, BCE Inc Pref is 16.53 times less risky than Big Rock. The preferred stock trades about -0.03 of its potential returns per unit of risk. The Big Rock Brewery is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  64.00  in Big Rock Brewery on October 9, 2024 and sell it today you would earn a total of  48.00  from holding Big Rock Brewery or generate 75.0% return on investment over 90 days.

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

BCE Inc Pref  vs.  Big Rock Brewery

BCE Inc Pref

Risk-Adjusted Performance

0 of 100

Very Weak

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

Big Rock Brewery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Big Rock Brewery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with BCE and Big Rock

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

The idea behind BCE Inc Pref and Big Rock Brewery 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..