Correlation Between BCE and Analog Devices

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

By analyzing existing cross correlation between BCE Inc and Analog Devices, you can compare the effects of market volatilities on BCE and Analog Devices 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 Analog Devices. Check out your portfolio center. Please also check ongoing floating volatility patterns of BCE and Analog Devices.

Diversification Opportunities for BCE and Analog Devices

0.8

Correlation Coefficient

BCE  Analog Devices

Very poor diversification

The 3 months correlation between BCE and Analog is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding BCE Inc and Analog Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Analog Devices 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 are associated (or correlated) with Analog Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Analog Devices has no effect on the direction of BCE i.e., BCE and Analog Devices go up and down completely randomly.

Pair Corralation between BCE and Analog Devices

Considering the 90-day investment horizon BCE Inc is expected to under-perform the Analog Devices. But the stock apears to be less risky and, when comparing its historical volatility, BCE Inc is 1.65 times less risky than Analog Devices. The stock trades about -0.08 of its potential returns per unit of risk. The Analog Devices is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  15,823  in Analog Devices on September 20, 2024 and sell it today you would earn a total of  4,955  from holding Analog Devices or generate 31.32% return on investment over 90 days.

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

BCE Inc  vs.  Analog Devices

BCE Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BCE Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with BCE and Analog Devices

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

The idea behind BCE Inc and Analog Devices 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.