Correlation Between Boston Pizza and SIR Royalty

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

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

Diversification Opportunities for Boston Pizza and SIR Royalty

-0.31

Correlation Coefficient

Boston Pizza  SIR Royalty

Very good diversification

The 3 months correlation between Boston and SIR is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Boston Pizza Royalties and SIR Royalty Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIR Royalty Income and Boston Pizza 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 Boston Pizza Royalties are associated (or correlated) with SIR Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIR Royalty Income has no effect on the direction of Boston Pizza i.e., Boston Pizza and SIR Royalty go up and down completely randomly.

Pair Corralation between Boston Pizza and SIR Royalty

Assuming the 90 days trading horizon Boston Pizza Royalties is expected to under-perform the SIR Royalty. But the stock apears to be less risky and, when comparing its historical volatility, Boston Pizza Royalties is 1.65 times less risky than SIR Royalty. The stock trades about -0.04 of its potential returns per unit of risk. The SIR Royalty Income is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,240  in SIR Royalty Income on December 30, 2024 and sell it today you would earn a total of  15.00  from holding SIR Royalty Income or generate 1.21% return on investment over 90 days.

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

Boston Pizza Royalties  vs.  SIR Royalty Income

Boston Pizza Royalties

Risk-Adjusted Performance

Very Weak

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

SIR Royalty Income

Risk-Adjusted Performance

Weak

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

Pair Trading with Boston Pizza and SIR Royalty

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

The idea behind Boston Pizza Royalties and SIR Royalty Income 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.