Correlation Between Lumber Futures and Britvic PLC

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

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

Diversification Opportunities for Lumber Futures and Britvic PLC

-0.73

Correlation Coefficient

Lumber Futures  Britvic PLC

Pay attention - limited upside

The 3 months correlation between Lumber and Britvic is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Lumber Futures and Britvic PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Britvic PLC ADR and Lumber Futures 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 Lumber Futures are associated (or correlated) with Britvic PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Britvic PLC ADR has no effect on the direction of Lumber Futures i.e., Lumber Futures and Britvic PLC go up and down completely randomly.

Pair Corralation between Lumber Futures and Britvic PLC

Assuming the 90 days horizon Lumber Futures is expected to under-perform the Britvic PLC. In addition to that, Lumber Futures is 1.61 times more volatile than Britvic PLC ADR. It trades about -0.23 of its total potential returns per unit of risk. Britvic PLC ADR is currently generating about 0.1 per unit of volatility. If you would invest  3,250  in Britvic PLC ADR on October 6, 2024 and sell it today you would earn a total of  54.00  from holding Britvic PLC ADR or generate 1.66% return on investment over 90 days.

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

Lumber Futures  vs.  Britvic PLC ADR

Lumber Futures

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lumber Futures are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Lumber Futures is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Britvic PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Britvic PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Britvic PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lumber Futures and Britvic PLC

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

The idea behind Lumber Futures and Britvic PLC ADR 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.