Correlation Between IBL HealthCare and Big Bird

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

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

Diversification Opportunities for IBL HealthCare and Big Bird

0.58

Correlation Coefficient

IBL HealthCare  Big Bird

Very weak diversification

The 3 months correlation between IBL and Big is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding IBL HealthCare 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 IBL HealthCare 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 IBL HealthCare 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 IBL HealthCare i.e., IBL HealthCare and Big Bird go up and down completely randomly.

Pair Corralation between IBL HealthCare and Big Bird

Assuming the 90 days trading horizon IBL HealthCare is expected to under-perform the Big Bird. But the stock apears to be less risky and, when comparing its historical volatility, IBL HealthCare is 1.35 times less risky than Big Bird. The stock trades about -0.06 of its potential returns per unit of risk. The Big Bird Foods is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  5,494  in Big Bird Foods on December 29, 2024 and sell it today you would lose (480.00) from holding Big Bird Foods or give up 8.74% of portfolio value over 90 days.

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

IBL HealthCare  vs.  Big Bird Foods

IBL HealthCare

Risk-Adjusted Performance

Very Weak

Over the last 90 days IBL HealthCare has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Big Bird Foods

Risk-Adjusted Performance

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 somewhat strong basic indicators, Big Bird is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IBL HealthCare and Big Bird

The main advantage of trading using opposite IBL HealthCare and Big Bird positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IBL HealthCare 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 IBL HealthCare 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.