Correlation Between Berkshire Hathaway and Boeing

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

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

Diversification Opportunities for Berkshire Hathaway and Boeing

0.61

Correlation Coefficient

Berkshire Hathaway  Boeing

Poor diversification

The 3 months correlation between Berkshire and Boeing is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway and The Boeing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boeing and Berkshire Hathaway 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 Berkshire Hathaway are associated (or correlated) with Boeing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boeing has no effect on the direction of Berkshire Hathaway i.e., Berkshire Hathaway and Boeing go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Boeing

Assuming the 90 days trading horizon Berkshire Hathaway is expected to generate 5.4 times less return on investment than Boeing. But when comparing it to its historical volatility, Berkshire Hathaway is 1.68 times less risky than Boeing. It trades about 0.05 of its potential returns per unit of risk. The Boeing is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  85,905  in The Boeing on October 15, 2024 and sell it today you would earn a total of  17,537  from holding The Boeing or generate 20.41% return on investment over 90 days.

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

Berkshire Hathaway  vs.  The Boeing

Berkshire Hathaway

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Berkshire Hathaway is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Boeing

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Boeing are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Boeing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Berkshire Hathaway and Boeing

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

The idea behind Berkshire Hathaway and The Boeing 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.