Correlation Between B Communications and Computer Direct

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

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

Diversification Opportunities for B Communications and Computer Direct

-0.34

Correlation Coefficient

B Communications  Computer Direct

Very good diversification

The 3 months correlation between BCOM and Computer is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding B Communications and Computer Direct in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Computer Direct and B Communications 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 B Communications are associated (or correlated) with Computer Direct. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Computer Direct has no effect on the direction of B Communications i.e., B Communications and Computer Direct go up and down completely randomly.

Pair Corralation between B Communications and Computer Direct

Assuming the 90 days trading horizon B Communications is expected to generate 1.06 times more return on investment than Computer Direct. However, B Communications is 1.06 times more volatile than Computer Direct. It trades about 0.11 of its potential returns per unit of risk. Computer Direct is currently generating about -0.01 per unit of risk. If you would invest  166,800  in B Communications on December 30, 2024 and sell it today you would earn a total of  24,400  from holding B Communications or generate 14.63% return on investment over 90 days.

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

B Communications  vs.  Computer Direct

B Communications

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in B Communications are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, B Communications sustained solid returns over the last few months and may actually be approaching a breakup point.

Computer Direct

Risk-Adjusted Performance

Very Weak

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

Pair Trading with B Communications and Computer Direct

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

The idea behind B Communications and Computer Direct 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.

Check out your portfolio center.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.