Correlation Between Investment and BBB Foods

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

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

Diversification Opportunities for Investment and BBB Foods

0.15

Correlation Coefficient

Investment  BBB Foods

Average diversification

The 3 months correlation between Investment and BBB is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Investment AB Latour and BBB Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BBB Foods and Investment 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 Investment AB Latour are associated (or correlated) with BBB Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BBB Foods has no effect on the direction of Investment i.e., Investment and BBB Foods go up and down completely randomly.

Pair Corralation between Investment and BBB Foods

Assuming the 90 days horizon Investment AB Latour is expected to generate 0.24 times more return on investment than BBB Foods. However, Investment AB Latour is 4.19 times less risky than BBB Foods. It trades about -0.19 of its potential returns per unit of risk. BBB Foods is currently generating about -0.09 per unit of risk. If you would invest  2,456  in Investment AB Latour on October 26, 2024 and sell it today you would lose (136.00) from holding Investment AB Latour or give up 5.54% of portfolio value over 90 days.

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

Investment AB Latour  vs.  BBB Foods

Investment AB Latour

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Investment AB Latour has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Investment is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

BBB Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BBB Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's fundamental drivers 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 Investment and BBB Foods

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

The idea behind Investment AB Latour and BBB 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.