Correlation Between Berkshire Hathaway and Transurban

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

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

Diversification Opportunities for Berkshire Hathaway and Transurban

-0.54

Correlation Coefficient

Berkshire Hathaway  Transurban

Excellent diversification

The 3 months correlation between Berkshire and Transurban is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway and Transurban Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transurban Group 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 Transurban. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transurban Group has no effect on the direction of Berkshire Hathaway i.e., Berkshire Hathaway and Transurban go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Transurban

Assuming the 90 days trading horizon Berkshire Hathaway is expected to generate 1.14 times more return on investment than Transurban. However, Berkshire Hathaway is 1.14 times more volatile than Transurban Group. It trades about 0.16 of its potential returns per unit of risk. Transurban Group is currently generating about -0.06 per unit of risk. If you would invest  43,500  in Berkshire Hathaway on December 29, 2024 and sell it today you would earn a total of  6,120  from holding Berkshire Hathaway or generate 14.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Berkshire Hathaway  vs.  Transurban Group

Berkshire Hathaway

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Berkshire Hathaway reported solid returns over the last few months and may actually be approaching a breakup point.

Transurban Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Transurban Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Transurban is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Berkshire Hathaway and Transurban

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

The idea behind Berkshire Hathaway and Transurban Group 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.