Correlation Between Investor and BlackRock

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

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

Diversification Opportunities for Investor and BlackRock

-0.58

Correlation Coefficient

Investor  BlackRock

Excellent diversification

The 3 months correlation between Investor and BlackRock is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Investor AB and BlackRock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlackRock and Investor 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 Investor AB are associated (or correlated) with BlackRock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BlackRock has no effect on the direction of Investor i.e., Investor and BlackRock go up and down completely randomly.

Pair Corralation between Investor and BlackRock

Assuming the 90 days horizon Investor AB is expected to under-perform the BlackRock. But the pink sheet apears to be less risky and, when comparing its historical volatility, Investor AB is 1.1 times less risky than BlackRock. The pink sheet trades about -0.17 of its potential returns per unit of risk. The BlackRock is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  93,603  in BlackRock on October 7, 2024 and sell it today you would earn a total of  8,480  from holding BlackRock or generate 9.06% return on investment over 90 days.

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

Investor AB  vs.  BlackRock

Investor AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Investor AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

BlackRock

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BlackRock are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, BlackRock may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Investor and BlackRock

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

The idea behind Investor AB and BlackRock 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.