Correlation Between Highland Funds and BBX Capital

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

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

Diversification Opportunities for Highland Funds and BBX Capital

0.89

Correlation Coefficient

Highland Funds  BBX Capital

Very poor diversification

The 3 months correlation between Highland and BBX is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Highland Funds I and BBX Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BBX Capital and Highland Funds 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 Highland Funds I are associated (or correlated) with BBX Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BBX Capital has no effect on the direction of Highland Funds i.e., Highland Funds and BBX Capital go up and down completely randomly.

Pair Corralation between Highland Funds and BBX Capital

Assuming the 90 days trading horizon Highland Funds I is expected to generate 1.08 times more return on investment than BBX Capital. However, Highland Funds is 1.08 times more volatile than BBX Capital. It trades about -0.06 of its potential returns per unit of risk. BBX Capital is currently generating about -0.18 per unit of risk. If you would invest  1,719  in Highland Funds I on October 11, 2024 and sell it today you would lose (26.00) from holding Highland Funds I or give up 1.51% of portfolio value over 90 days.

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

Highland Funds I  vs.  BBX Capital

Highland Funds I

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Highland Funds I has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Preferred 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.

BBX Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BBX Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's forward 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 Highland Funds and BBX Capital

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

The idea behind Highland Funds I and BBX 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.