Correlation Between Gala and BNT

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

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

Diversification Opportunities for Gala and BNT

0.95

Correlation Coefficient

Gala  BNT

Almost no diversification

The 3 months correlation between Gala and BNT is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Gala and BNT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BNT and Gala 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 Gala are associated (or correlated) with BNT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BNT has no effect on the direction of Gala i.e., Gala and BNT go up and down completely randomly.

Pair Corralation between Gala and BNT

Assuming the 90 days trading horizon Gala is expected to generate 1.51 times more return on investment than BNT. However, Gala is 1.51 times more volatile than BNT. It trades about 0.2 of its potential returns per unit of risk. BNT is currently generating about 0.2 per unit of risk. If you would invest  1.90  in Gala on August 30, 2024 and sell it today you would earn a total of  1.81  from holding Gala or generate 95.26% return on investment over 90 days.

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

Gala  vs.  BNT

Gala

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gala are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Gala exhibited solid returns over the last few months and may actually be approaching a breakup point.

BNT

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BNT are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, BNT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gala and BNT

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

The idea behind Gala and BNT 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.

Check out your portfolio center.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.