Correlation Between Berkshire Hathaway and Spectra7 Microsystems

Can any of the company-specific risk be diversified away by investing in both Berkshire Hathaway and Spectra7 Microsystems 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 Spectra7 Microsystems into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Berkshire Hathaway and Spectra7 Microsystems, you can compare the effects of market volatilities on Berkshire Hathaway and Spectra7 Microsystems 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 Spectra7 Microsystems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Berkshire Hathaway and Spectra7 Microsystems.

Diversification Opportunities for Berkshire Hathaway and Spectra7 Microsystems

0.72

Correlation Coefficient

Berkshire Hathaway  Spectra7 Microsystems

Poor diversification

The 3 months correlation between Berkshire and Spectra7 is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway and Spectra7 Microsystems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spectra7 Microsystems 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 Spectra7 Microsystems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spectra7 Microsystems has no effect on the direction of Berkshire Hathaway i.e., Berkshire Hathaway and Spectra7 Microsystems go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Spectra7 Microsystems

Assuming the 90 days horizon Berkshire Hathaway is expected to generate 2.2 times less return on investment than Spectra7 Microsystems. But when comparing it to its historical volatility, Berkshire Hathaway is 9.59 times less risky than Spectra7 Microsystems. It trades about 0.08 of its potential returns per unit of risk. Spectra7 Microsystems is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  44.00  in Spectra7 Microsystems on October 7, 2024 and sell it today you would lose (35.83) from holding Spectra7 Microsystems or give up 81.43% of portfolio value over 90 days.

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

Berkshire Hathaway  vs.  Spectra7 Microsystems

Berkshire Hathaway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Berkshire Hathaway has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Spectra7 Microsystems

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Spectra7 Microsystems are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Spectra7 Microsystems reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Berkshire Hathaway and Spectra7 Microsystems

The main advantage of trading using opposite Berkshire Hathaway and Spectra7 Microsystems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Berkshire Hathaway position performs unexpectedly, Spectra7 Microsystems 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 Spectra7 Microsystems will offset losses from the drop in Spectra7 Microsystems' long position.

The idea behind Berkshire Hathaway and Spectra7 Microsystems 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.