Correlation Between NRB Industrial and BF Investment

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

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

Diversification Opportunities for NRB Industrial and BF Investment

-0.53

Correlation Coefficient

NRB Industrial  BF Investment

Excellent diversification

The 3 months correlation between NRB and BFINVEST is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding NRB Industrial Bearings and BF Investment Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BF Investment Limited and NRB Industrial 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 NRB Industrial Bearings are associated (or correlated) with BF Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BF Investment Limited has no effect on the direction of NRB Industrial i.e., NRB Industrial and BF Investment go up and down completely randomly.

Pair Corralation between NRB Industrial and BF Investment

Assuming the 90 days trading horizon NRB Industrial Bearings is expected to under-perform the BF Investment. But the stock apears to be less risky and, when comparing its historical volatility, NRB Industrial Bearings is 1.63 times less risky than BF Investment. The stock trades about -0.43 of its potential returns per unit of risk. The BF Investment Limited is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  73,460  in BF Investment Limited on October 4, 2024 and sell it today you would lose (5,095) from holding BF Investment Limited or give up 6.94% of portfolio value over 90 days.

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

NRB Industrial Bearings  vs.  BF Investment Limited

NRB Industrial Bearings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NRB Industrial Bearings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

BF Investment Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BF Investment Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, BF Investment may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with NRB Industrial and BF Investment

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

The idea behind NRB Industrial Bearings and BF Investment 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.

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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.