Correlation Between Berkeley Group and Barratt Developments

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

By analyzing existing cross correlation between Berkeley Group Holdings and Barratt Developments PLC, you can compare the effects of market volatilities on Berkeley Group and Barratt Developments 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 Berkeley Group with a short position of Barratt Developments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Berkeley Group and Barratt Developments.

Diversification Opportunities for Berkeley Group and Barratt Developments

0.65

Correlation Coefficient

Berkeley Group  Barratt Developments

Poor diversification

The 3 months correlation between Berkeley and Barratt is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Berkeley Group Holdings and Barratt Developments PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barratt Developments PLC and Berkeley Group 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 Berkeley Group Holdings are associated (or correlated) with Barratt Developments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barratt Developments PLC has no effect on the direction of Berkeley Group i.e., Berkeley Group and Barratt Developments go up and down completely randomly.

Pair Corralation between Berkeley Group and Barratt Developments

Assuming the 90 days horizon Berkeley Group Holdings is expected to under-perform the Barratt Developments. But the pink sheet apears to be less risky and, when comparing its historical volatility, Berkeley Group Holdings is 1.22 times less risky than Barratt Developments. The pink sheet trades about -0.04 of its potential returns per unit of risk. The Barratt Developments PLC is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,108  in Barratt Developments PLC on December 30, 2024 and sell it today you would earn a total of  11.00  from holding Barratt Developments PLC or generate 0.99% return on investment over 90 days.

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

Berkeley Group Holdings  vs.  Barratt Developments PLC

Berkeley Group Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Berkeley Group Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Berkeley Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Barratt Developments PLC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Barratt Developments PLC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Barratt Developments is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Berkeley Group and Barratt Developments

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

The idea behind Berkeley Group Holdings and Barratt Developments PLC 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.