Correlation Between Berkshire Hathaway and Cymbria

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

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

Diversification Opportunities for Berkshire Hathaway and Cymbria

0.4

Correlation Coefficient

Berkshire Hathaway  Cymbria

Very weak diversification

The 3 months correlation between Berkshire and Cymbria is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway CDR and Cymbria in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cymbria 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 CDR are associated (or correlated) with Cymbria. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cymbria has no effect on the direction of Berkshire Hathaway i.e., Berkshire Hathaway and Cymbria go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Cymbria

Assuming the 90 days trading horizon Berkshire Hathaway CDR is expected to under-perform the Cymbria. But the stock apears to be less risky and, when comparing its historical volatility, Berkshire Hathaway CDR is 1.08 times less risky than Cymbria. The stock trades about -0.07 of its potential returns per unit of risk. The Cymbria is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  7,275  in Cymbria on October 14, 2024 and sell it today you would lose (65.00) from holding Cymbria or give up 0.89% of portfolio value over 90 days.

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

Berkshire Hathaway CDR  vs.  Cymbria

Berkshire Hathaway CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Berkshire Hathaway CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Berkshire Hathaway is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Cymbria

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cymbria has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, Cymbria is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Berkshire Hathaway and Cymbria

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

The idea behind Berkshire Hathaway CDR and Cymbria 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.