Correlation Between Pear Tree and Bridge Builder

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

By analyzing existing cross correlation between Pear Tree Polaris and Bridge Builder Smallmid, you can compare the effects of market volatilities on Pear Tree and Bridge Builder 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 Pear Tree with a short position of Bridge Builder. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pear Tree and Bridge Builder.

Diversification Opportunities for Pear Tree and Bridge Builder

-0.45

Correlation Coefficient

Pear Tree  Bridge Builder

Very good diversification

The 3 months correlation between Pear and Bridge is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Pear Tree Polaris and Bridge Builder Smallmid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridge Builder Smallmid and Pear Tree 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 Pear Tree Polaris are associated (or correlated) with Bridge Builder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridge Builder Smallmid has no effect on the direction of Pear Tree i.e., Pear Tree and Bridge Builder go up and down completely randomly.

Pair Corralation between Pear Tree and Bridge Builder

Assuming the 90 days horizon Pear Tree Polaris is expected to under-perform the Bridge Builder. But the mutual fund apears to be less risky and, when comparing its historical volatility, Pear Tree Polaris is 1.26 times less risky than Bridge Builder. The mutual fund trades about -0.33 of its potential returns per unit of risk. The Bridge Builder Smallmid is currently generating about -0.24 of returns per unit of risk over similar time horizon. If you would invest  1,747  in Bridge Builder Smallmid on October 7, 2024 and sell it today you would lose (104.00) from holding Bridge Builder Smallmid or give up 5.95% of portfolio value over 90 days.

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

Pear Tree Polaris  vs.  Bridge Builder Smallmid

Pear Tree Polaris

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pear Tree Polaris has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Bridge Builder Smallmid

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bridge Builder Smallmid are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Bridge Builder is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pear Tree and Bridge Builder

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

The idea behind Pear Tree Polaris and Bridge Builder Smallmid 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.