Correlation Between Berkshire Hathaway and Headwater Exploration

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

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

Diversification Opportunities for Berkshire Hathaway and Headwater Exploration

0.38

Correlation Coefficient

Berkshire Hathaway  Headwater Exploration

Weak diversification

The 3 months correlation between Berkshire and Headwater is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway and Headwater Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Headwater Exploration and Berkshire Hathaway 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 Berkshire Hathaway are associated (or correlated) with Headwater Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Headwater Exploration has no effect on the direction of Berkshire Hathaway i.e., Berkshire Hathaway and Headwater Exploration go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Headwater Exploration

Assuming the 90 days horizon Berkshire Hathaway is expected to generate 0.43 times more return on investment than Headwater Exploration. However, Berkshire Hathaway is 2.33 times less risky than Headwater Exploration. It trades about 0.09 of its potential returns per unit of risk. Headwater Exploration is currently generating about 0.03 per unit of risk. If you would invest  45,870,000  in Berkshire Hathaway on September 12, 2024 and sell it today you would earn a total of  23,592,000  from holding Berkshire Hathaway or generate 51.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Berkshire Hathaway  vs.  Headwater Exploration

Berkshire Hathaway

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Berkshire Hathaway is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Headwater Exploration

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Headwater Exploration are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Headwater Exploration is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Berkshire Hathaway and Headwater Exploration

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

The idea behind Berkshire Hathaway and Headwater Exploration 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.