Correlation Between BUA FOODS and CUSTODIAN INVESTMENT

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

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

Diversification Opportunities for BUA FOODS and CUSTODIAN INVESTMENT

0.68

Correlation Coefficient

BUA FOODS  CUSTODIAN INVESTMENT

Poor diversification

The 3 months correlation between BUA and CUSTODIAN is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding BUA FOODS PLC and CUSTODIAN INVESTMENT PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CUSTODIAN INVESTMENT PLC and BUA FOODS 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 BUA FOODS PLC are associated (or correlated) with CUSTODIAN INVESTMENT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CUSTODIAN INVESTMENT PLC has no effect on the direction of BUA FOODS i.e., BUA FOODS and CUSTODIAN INVESTMENT go up and down completely randomly.

Pair Corralation between BUA FOODS and CUSTODIAN INVESTMENT

Assuming the 90 days trading horizon BUA FOODS is expected to generate 8.06 times less return on investment than CUSTODIAN INVESTMENT. But when comparing it to its historical volatility, BUA FOODS PLC is 5.08 times less risky than CUSTODIAN INVESTMENT. It trades about 0.13 of its potential returns per unit of risk. CUSTODIAN INVESTMENT PLC is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,280  in CUSTODIAN INVESTMENT PLC on October 9, 2024 and sell it today you would earn a total of  585.00  from holding CUSTODIAN INVESTMENT PLC or generate 45.7% return on investment over 90 days.

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

BUA FOODS PLC  vs.  CUSTODIAN INVESTMENT PLC

BUA FOODS PLC

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BUA FOODS PLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, BUA FOODS is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

CUSTODIAN INVESTMENT PLC

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CUSTODIAN INVESTMENT PLC are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, CUSTODIAN INVESTMENT demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BUA FOODS and CUSTODIAN INVESTMENT

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

The idea behind BUA FOODS PLC and CUSTODIAN INVESTMENT 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.

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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 Global Correlations module to find global opportunities by holding instruments from different markets.