Correlation Between Carlsberg and Barratt Developments

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

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

Diversification Opportunities for Carlsberg and Barratt Developments

0.81

Correlation Coefficient

Carlsberg  Barratt Developments

Very poor diversification

The 3 months correlation between Carlsberg and Barratt is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Carlsberg AS and Barratt Developments PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barratt Developments PLC and Carlsberg 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 Carlsberg AS are associated (or correlated) with Barratt Developments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barratt Developments PLC has no effect on the direction of Carlsberg i.e., Carlsberg and Barratt Developments go up and down completely randomly.

Pair Corralation between Carlsberg and Barratt Developments

Assuming the 90 days horizon Carlsberg AS is expected to under-perform the Barratt Developments. But the pink sheet apears to be less risky and, when comparing its historical volatility, Carlsberg AS is 1.07 times less risky than Barratt Developments. The pink sheet trades about -0.18 of its potential returns per unit of risk. The Barratt Developments PLC is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  1,188  in Barratt Developments PLC on October 6, 2024 and sell it today you would lose (125.00) from holding Barratt Developments PLC or give up 10.52% of portfolio value over 90 days.

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

Carlsberg AS  vs.  Barratt Developments PLC

Carlsberg AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carlsberg AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Barratt Developments PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Barratt Developments PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Carlsberg and Barratt Developments

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

The idea behind Carlsberg AS and Barratt Developments 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..