Correlation Between MIC Electronics and BF Utilities

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

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

Diversification Opportunities for MIC Electronics and BF Utilities

-0.1

Correlation Coefficient

MIC Electronics  BF Utilities

Good diversification

The 3 months correlation between MIC and BFUTILITIE is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding MIC Electronics Limited and BF Utilities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BF Utilities Limited and MIC Electronics 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 MIC Electronics Limited are associated (or correlated) with BF Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BF Utilities Limited has no effect on the direction of MIC Electronics i.e., MIC Electronics and BF Utilities go up and down completely randomly.

Pair Corralation between MIC Electronics and BF Utilities

Assuming the 90 days trading horizon MIC Electronics Limited is expected to under-perform the BF Utilities. But the stock apears to be less risky and, when comparing its historical volatility, MIC Electronics Limited is 1.53 times less risky than BF Utilities. The stock trades about -0.07 of its potential returns per unit of risk. The BF Utilities Limited is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  76,355  in BF Utilities Limited on September 20, 2024 and sell it today you would earn a total of  27,615  from holding BF Utilities Limited or generate 36.17% return on investment over 90 days.

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

MIC Electronics Limited  vs.  BF Utilities Limited

MIC Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MIC Electronics Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

BF Utilities Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BF Utilities Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, BF Utilities demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MIC Electronics and BF Utilities

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

The idea behind MIC Electronics Limited and BF Utilities Limited 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.

Check out your portfolio center.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.