Correlation Between Baker Steel and Indivior PLC

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

By analyzing existing cross correlation between Baker Steel Resources and Indivior PLC, you can compare the effects of market volatilities on Baker Steel and Indivior PLC 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 Baker Steel with a short position of Indivior PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Baker Steel and Indivior PLC.

Diversification Opportunities for Baker Steel and Indivior PLC

0.87

Correlation Coefficient

Baker Steel  Indivior PLC

Very poor diversification

The 3 months correlation between Baker and Indivior is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Baker Steel Resources and Indivior PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indivior PLC and Baker Steel 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 Baker Steel Resources are associated (or correlated) with Indivior PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indivior PLC has no effect on the direction of Baker Steel i.e., Baker Steel and Indivior PLC go up and down completely randomly.

Pair Corralation between Baker Steel and Indivior PLC

Assuming the 90 days trading horizon Baker Steel is expected to generate 1.83 times less return on investment than Indivior PLC. But when comparing it to its historical volatility, Baker Steel Resources is 2.1 times less risky than Indivior PLC. It trades about 0.17 of its potential returns per unit of risk. Indivior PLC is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  74,900  in Indivior PLC on October 8, 2024 and sell it today you would earn a total of  26,200  from holding Indivior PLC or generate 34.98% return on investment over 90 days.

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

Baker Steel Resources  vs.  Indivior PLC

Baker Steel Resources

Risk-Adjusted Performance

13 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Baker Steel Resources are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Baker Steel unveiled solid returns over the last few months and may actually be approaching a breakup point.

Indivior PLC

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Indivior PLC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Indivior PLC unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Baker Steel and Indivior PLC

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

The idea behind Baker Steel Resources and Indivior PLC 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.

Check out your portfolio center.

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.