Correlation Between BLK and SLS

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

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

Diversification Opportunities for BLK and SLS

1.0

Correlation Coefficient

BLK  SLS

No risk reduction

The 3 months correlation between BLK and SLS is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding BLK and SLS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SLS and BLK 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 BLK are associated (or correlated) with SLS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SLS has no effect on the direction of BLK i.e., BLK and SLS go up and down completely randomly.

Pair Corralation between BLK and SLS

Assuming the 90 days trading horizon BLK is expected to generate 1.01 times more return on investment than SLS. However, BLK is 1.01 times more volatile than SLS. It trades about -0.03 of its potential returns per unit of risk. SLS is currently generating about -0.03 per unit of risk. If you would invest  2.80  in BLK on December 28, 2024 and sell it today you would lose (0.18) from holding BLK or give up 6.43% of portfolio value over 90 days.

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

BLK  vs.  SLS

BLK

Risk-Adjusted Performance

Very Weak

Over the last 90 days BLK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking signals, BLK is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

SLS

Risk-Adjusted Performance

Very Weak

Over the last 90 days SLS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, SLS is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with BLK and SLS

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

The idea behind BLK and SLS 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.