Correlation Between Buffalo Large and Steward Small

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

By analyzing existing cross correlation between Buffalo Large Cap and Steward Small Mid Cap, you can compare the effects of market volatilities on Buffalo Large and Steward Small 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 Buffalo Large with a short position of Steward Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Buffalo Large and Steward Small.

Diversification Opportunities for Buffalo Large and Steward Small

0.59

Correlation Coefficient

Buffalo Large  Steward Small

Very weak diversification

The 3 months correlation between Buffalo and Steward is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Buffalo Large Cap and Steward Small Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steward Small Mid and Buffalo Large 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 Buffalo Large Cap are associated (or correlated) with Steward Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steward Small Mid has no effect on the direction of Buffalo Large i.e., Buffalo Large and Steward Small go up and down completely randomly.

Pair Corralation between Buffalo Large and Steward Small

Assuming the 90 days horizon Buffalo Large Cap is expected to generate 1.02 times more return on investment than Steward Small. However, Buffalo Large is 1.02 times more volatile than Steward Small Mid Cap. It trades about -0.06 of its potential returns per unit of risk. Steward Small Mid Cap is currently generating about -0.21 per unit of risk. If you would invest  5,648  in Buffalo Large Cap on December 2, 2024 and sell it today you would lose (274.00) from holding Buffalo Large Cap or give up 4.85% of portfolio value over 90 days.

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

Buffalo Large Cap  vs.  Steward Small Mid Cap

Buffalo Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Buffalo Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Buffalo Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Steward Small Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days Steward Small Mid Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Buffalo Large and Steward Small

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

The idea behind Buffalo Large Cap and Steward Small Mid Cap 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.