Correlation Between BF Investment and Ami Organics

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

By analyzing existing cross correlation between BF Investment Limited and Ami Organics Limited, you can compare the effects of market volatilities on BF Investment and Ami Organics 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 BF Investment with a short position of Ami Organics. Check out your portfolio center. Please also check ongoing floating volatility patterns of BF Investment and Ami Organics.

Diversification Opportunities for BF Investment and Ami Organics

0.56

Correlation Coefficient

BF Investment  Ami Organics

Very weak diversification

The 3 months correlation between BFINVEST and Ami is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding BF Investment Limited and Ami Organics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ami Organics Limited and BF Investment 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 BF Investment Limited are associated (or correlated) with Ami Organics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ami Organics Limited has no effect on the direction of BF Investment i.e., BF Investment and Ami Organics go up and down completely randomly.

Pair Corralation between BF Investment and Ami Organics

Assuming the 90 days trading horizon BF Investment is expected to generate 1.98 times less return on investment than Ami Organics. But when comparing it to its historical volatility, BF Investment Limited is 1.07 times less risky than Ami Organics. It trades about 0.08 of its potential returns per unit of risk. Ami Organics Limited is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  160,555  in Ami Organics Limited on October 5, 2024 and sell it today you would earn a total of  49,400  from holding Ami Organics Limited or generate 30.77% return on investment over 90 days.

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

BF Investment Limited  vs.  Ami Organics Limited

BF Investment Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BF Investment Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating technical and fundamental indicators, BF Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Ami Organics Limited

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ami Organics Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Ami Organics sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BF Investment and Ami Organics

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

The idea behind BF Investment Limited and Ami Organics Limited 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.