Correlation Between Berkshire Hathaway and Income Financial

Can any of the company-specific risk be diversified away by investing in both Berkshire Hathaway and Income Financial 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 Income Financial 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 Income Financial Trust, you can compare the effects of market volatilities on Berkshire Hathaway and Income Financial 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 Income Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Berkshire Hathaway and Income Financial.

Diversification Opportunities for Berkshire Hathaway and Income Financial

0.52

Correlation Coefficient

Berkshire Hathaway  Income Financial

Very weak diversification

The 3 months correlation between Berkshire and Income is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway CDR and Income Financial Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Income Financial Trust 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 Income Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Income Financial Trust has no effect on the direction of Berkshire Hathaway i.e., Berkshire Hathaway and Income Financial go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Income Financial

Assuming the 90 days trading horizon Berkshire Hathaway CDR is expected to under-perform the Income Financial. But the stock apears to be less risky and, when comparing its historical volatility, Berkshire Hathaway CDR is 1.19 times less risky than Income Financial. The stock trades about -0.01 of its potential returns per unit of risk. The Income Financial Trust is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  782.00  in Income Financial Trust on September 30, 2024 and sell it today you would earn a total of  75.00  from holding Income Financial Trust or generate 9.59% return on investment over 90 days.

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

Berkshire Hathaway CDR  vs.  Income Financial Trust

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.

Income Financial Trust

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Income Financial Trust are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental indicators, Income Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Berkshire Hathaway and Income Financial

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

The idea behind Berkshire Hathaway CDR and Income Financial Trust 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 Transaction History module to view history of all your transactions and understand their impact on performance.