Correlation Between Berkshire Hathaway and Prairie Provident

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

By analyzing existing cross correlation between Berkshire Hathaway and Prairie Provident Resources, you can compare the effects of market volatilities on Berkshire Hathaway and Prairie Provident 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 Prairie Provident. Check out your portfolio center. Please also check ongoing floating volatility patterns of Berkshire Hathaway and Prairie Provident.

Diversification Opportunities for Berkshire Hathaway and Prairie Provident

-0.49

Correlation Coefficient

Berkshire Hathaway  Prairie Provident

Very good diversification

The 3 months correlation between Berkshire and Prairie is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway and Prairie Provident Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prairie Provident 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 Prairie Provident. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prairie Provident has no effect on the direction of Berkshire Hathaway i.e., Berkshire Hathaway and Prairie Provident go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Prairie Provident

Assuming the 90 days horizon Berkshire Hathaway is expected to generate 9.99 times less return on investment than Prairie Provident. But when comparing it to its historical volatility, Berkshire Hathaway is 12.49 times less risky than Prairie Provident. It trades about 0.05 of its potential returns per unit of risk. Prairie Provident Resources is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2.64  in Prairie Provident Resources on September 13, 2024 and sell it today you would lose (0.52) from holding Prairie Provident Resources or give up 19.7% of portfolio value over 90 days.

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

Berkshire Hathaway  vs.  Prairie Provident Resources

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.

Prairie Provident

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Prairie Provident Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Prairie Provident reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Berkshire Hathaway and Prairie Provident

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

The idea behind Berkshire Hathaway and Prairie Provident Resources 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.