Correlation Between Berkshire Hathaway and Strategic Education

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

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

Diversification Opportunities for Berkshire Hathaway and Strategic Education

0.8

Correlation Coefficient

Berkshire Hathaway  Strategic Education

Very poor diversification

The 3 months correlation between Berkshire and Strategic is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway and Strategic Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Education 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 Strategic Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Education has no effect on the direction of Berkshire Hathaway i.e., Berkshire Hathaway and Strategic Education go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Strategic Education

Assuming the 90 days trading horizon Berkshire Hathaway is expected to generate 1.66 times less return on investment than Strategic Education. But when comparing it to its historical volatility, Berkshire Hathaway is 1.97 times less risky than Strategic Education. It trades about 0.1 of its potential returns per unit of risk. Strategic Education is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  7,949  in Strategic Education on October 5, 2024 and sell it today you would earn a total of  851.00  from holding Strategic Education or generate 10.71% return on investment over 90 days.

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

Berkshire Hathaway  vs.  Strategic Education

Berkshire Hathaway

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Berkshire Hathaway has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather fragile basic indicators, Berkshire Hathaway may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Strategic Education

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Strategic Education has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, Strategic Education reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Berkshire Hathaway and Strategic Education

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

The idea behind Berkshire Hathaway and Strategic Education 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.