Correlation Between BF Investment and Heritage Foods

Can any of the company-specific risk be diversified away by investing in both BF Investment and Heritage Foods 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 Heritage Foods 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 Heritage Foods Limited, you can compare the effects of market volatilities on BF Investment and Heritage Foods 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 Heritage Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of BF Investment and Heritage Foods.

Diversification Opportunities for BF Investment and Heritage Foods

-0.63

Correlation Coefficient

BF Investment  Heritage Foods

Excellent diversification

The 3 months correlation between BFINVEST and Heritage is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding BF Investment Limited and Heritage Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Foods 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 Heritage Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Foods has no effect on the direction of BF Investment i.e., BF Investment and Heritage Foods go up and down completely randomly.

Pair Corralation between BF Investment and Heritage Foods

Assuming the 90 days trading horizon BF Investment is expected to generate 1.24 times less return on investment than Heritage Foods. In addition to that, BF Investment is 1.15 times more volatile than Heritage Foods Limited. It trades about 0.07 of its total potential returns per unit of risk. Heritage Foods Limited is currently generating about 0.1 per unit of volatility. If you would invest  15,531  in Heritage Foods Limited on September 19, 2024 and sell it today you would earn a total of  33,904  from holding Heritage Foods Limited or generate 218.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.57%
Values	Daily Returns

BF Investment Limited  vs.  Heritage Foods Limited

BF Investment Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BF Investment Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, BF Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Heritage Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heritage Foods Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with BF Investment and Heritage Foods

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

The idea behind BF Investment Limited and Heritage Foods 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.

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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.