Correlation Between Forestar and Brightspire Capital

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

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

Diversification Opportunities for Forestar and Brightspire Capital

-0.57

Correlation Coefficient

Forestar  Brightspire Capital

Excellent diversification

The 3 months correlation between Forestar and Brightspire is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Forestar Group and Brightspire Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brightspire Capital and Forestar 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 Forestar Group are associated (or correlated) with Brightspire Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brightspire Capital has no effect on the direction of Forestar i.e., Forestar and Brightspire Capital go up and down completely randomly.

Pair Corralation between Forestar and Brightspire Capital

Considering the 90-day investment horizon Forestar Group is expected to under-perform the Brightspire Capital. But the stock apears to be less risky and, when comparing its historical volatility, Forestar Group is 1.51 times less risky than Brightspire Capital. The stock trades about -0.06 of its potential returns per unit of risk. The Brightspire Capital is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  562.00  in Brightspire Capital on September 12, 2024 and sell it today you would earn a total of  81.00  from holding Brightspire Capital or generate 14.41% return on investment over 90 days.

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

Forestar Group  vs.  Brightspire Capital

Forestar Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Forestar Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest conflicting performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Brightspire Capital

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brightspire Capital are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Brightspire Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Forestar and Brightspire Capital

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

The idea behind Forestar Group and Brightspire 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.