Correlation Between Pan Pacific and Barratt Developments

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

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

Diversification Opportunities for Pan Pacific and Barratt Developments

0.64

Correlation Coefficient

Pan Pacific  Barratt Developments

Poor diversification

The 3 months correlation between Pan and Barratt is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Pan Pacific International 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 Pan Pacific 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 Pan Pacific International 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 Pan Pacific i.e., Pan Pacific and Barratt Developments go up and down completely randomly.

Pair Corralation between Pan Pacific and Barratt Developments

Assuming the 90 days horizon Pan Pacific International is expected to generate 1.91 times more return on investment than Barratt Developments. However, Pan Pacific is 1.91 times more volatile than Barratt Developments plc. It trades about 0.13 of its potential returns per unit of risk. Barratt Developments plc is currently generating about -0.22 per unit of risk. If you would invest  2,484  in Pan Pacific International on September 8, 2024 and sell it today you would earn a total of  126.00  from holding Pan Pacific International or generate 5.07% return on investment over 90 days.

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

Pan Pacific International  vs.  Barratt Developments plc

Pan Pacific International

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pan Pacific International are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Pan Pacific is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the 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. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Pan Pacific and Barratt Developments

The main advantage of trading using opposite Pan Pacific and Barratt Developments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pan Pacific 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 Pan Pacific International 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.