Correlation Between Crescent Steel and Big Bird

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

By analyzing existing cross correlation between Crescent Steel Allied and Big Bird Foods, you can compare the effects of market volatilities on Crescent Steel and Big Bird 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 Crescent Steel with a short position of Big Bird. Check out your portfolio center. Please also check ongoing floating volatility patterns of Crescent Steel and Big Bird.

Diversification Opportunities for Crescent Steel and Big Bird

0.64

Correlation Coefficient

Crescent Steel  Big Bird

Poor diversification

The 3 months correlation between Crescent and Big is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Crescent Steel Allied and Big Bird Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big Bird Foods and Crescent 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 Crescent Steel Allied are associated (or correlated) with Big Bird. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big Bird Foods has no effect on the direction of Crescent Steel i.e., Crescent Steel and Big Bird go up and down completely randomly.

Pair Corralation between Crescent Steel and Big Bird

Assuming the 90 days trading horizon Crescent Steel Allied is expected to generate 1.16 times more return on investment than Big Bird. However, Crescent Steel is 1.16 times more volatile than Big Bird Foods. It trades about -0.02 of its potential returns per unit of risk. Big Bird Foods is currently generating about -0.11 per unit of risk. If you would invest  11,702  in Crescent Steel Allied on October 25, 2024 and sell it today you would lose (1,208) from holding Crescent Steel Allied or give up 10.32% of portfolio value over 90 days.

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

Crescent Steel Allied  vs.  Big Bird Foods

Crescent Steel Allied

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Crescent Steel Allied has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Crescent Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Big Bird Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Big Bird Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat 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.

Pair Trading with Crescent Steel and Big Bird

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

The idea behind Crescent Steel Allied and Big Bird Foods 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.