Correlation Between BCE and Natural Alternatives

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

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

Diversification Opportunities for BCE and Natural Alternatives

0.69

Correlation Coefficient

BCE  Natural Alternatives

Poor diversification

The 3 months correlation between BCE and Natural is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding BCE Inc and Natural Alternatives Internati in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Alternatives 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 Natural Alternatives. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Alternatives has no effect on the direction of BCE i.e., BCE and Natural Alternatives go up and down completely randomly.

Pair Corralation between BCE and Natural Alternatives

Considering the 90-day investment horizon BCE Inc is expected to generate 0.37 times more return on investment than Natural Alternatives. However, BCE Inc is 2.72 times less risky than Natural Alternatives. It trades about -0.28 of its potential returns per unit of risk. Natural Alternatives International is currently generating about -0.12 per unit of risk. If you would invest  3,453  in BCE Inc on September 12, 2024 and sell it today you would lose (856.00) from holding BCE Inc or give up 24.79% of portfolio value over 90 days.

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

BCE Inc  vs.  Natural Alternatives Internati

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.

Natural Alternatives

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Natural Alternatives International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with BCE and Natural Alternatives

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

The idea behind BCE Inc and Natural Alternatives International 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.