Correlation Between Buhler Industries and Terravest Capital

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

By analyzing existing cross correlation between Buhler Industries and Terravest Capital, you can compare the effects of market volatilities on Buhler Industries and Terravest Capital 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 Buhler Industries with a short position of Terravest Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Buhler Industries and Terravest Capital.

Diversification Opportunities for Buhler Industries and Terravest Capital

0.68

Correlation Coefficient

Buhler Industries  Terravest Capital

Poor diversification

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

Pair Corralation between Buhler Industries and Terravest Capital

Assuming the 90 days trading horizon Buhler Industries is expected to generate 1.0 times less return on investment than Terravest Capital. In addition to that, Buhler Industries is 1.52 times more volatile than Terravest Capital. It trades about 0.12 of its total potential returns per unit of risk. Terravest Capital is currently generating about 0.18 per unit of volatility. If you would invest  9,571  in Terravest Capital on September 5, 2024 and sell it today you would earn a total of  2,037  from holding Terravest Capital or generate 21.28% return on investment over 90 days.

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

Buhler Industries  vs.  Terravest Capital

Buhler Industries

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Buhler Industries are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward indicators, Buhler Industries displayed solid returns over the last few months and may actually be approaching a breakup point.

Terravest Capital

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Terravest Capital are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward-looking signals, Terravest Capital displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Buhler Industries and Terravest Capital

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

The idea behind Buhler Industries and Terravest Capital 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.