Correlation Between BF Investment and Summit Securities

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

Diversification Opportunities for BF Investment and Summit Securities

0.9

Correlation Coefficient

BF Investment  Summit Securities

Almost no diversification

The 3 months correlation between BFINVEST and Summit is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding BF Investment Limited and Summit Securities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Securities 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 Summit Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Securities has no effect on the direction of BF Investment i.e., BF Investment and Summit Securities go up and down completely randomly.

Pair Corralation between BF Investment and Summit Securities

Assuming the 90 days trading horizon BF Investment is expected to generate 1.19 times less return on investment than Summit Securities. But when comparing it to its historical volatility, BF Investment Limited is 1.28 times less risky than Summit Securities. It trades about 0.13 of its potential returns per unit of risk. Summit Securities Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  241,115  in Summit Securities Limited on September 4, 2024 and sell it today you would earn a total of  71,530  from holding Summit Securities Limited or generate 29.67% return on investment over 90 days.

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

BF Investment Limited  vs.  Summit Securities 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.

Summit Securities

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Securities Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Summit Securities unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BF Investment and Summit Securities

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

The idea behind BF Investment Limited and Summit Securities 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.