Correlation Between Retailors and B Communications

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

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

Diversification Opportunities for Retailors and B Communications

0.35

Correlation Coefficient

Retailors  B Communications

Weak diversification

The 3 months correlation between Retailors and BCOM is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Retailors and B Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on B Communications and Retailors 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 Retailors are associated (or correlated) with B Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of B Communications has no effect on the direction of Retailors i.e., Retailors and B Communications go up and down completely randomly.

Pair Corralation between Retailors and B Communications

Assuming the 90 days trading horizon Retailors is expected to generate 1.77 times less return on investment than B Communications. In addition to that, Retailors is 1.01 times more volatile than B Communications. It trades about 0.07 of its total potential returns per unit of risk. B Communications is currently generating about 0.13 per unit of volatility. If you would invest  167,000  in B Communications on December 24, 2024 and sell it today you would earn a total of  26,700  from holding B Communications or generate 15.99% return on investment over 90 days.

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

Retailors  vs.  B Communications

Retailors

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Retailors are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Retailors may actually be approaching a critical reversion point that can send shares even higher in April 2025.

B Communications

Risk-Adjusted Performance

OK

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

Pair Trading with Retailors and B Communications

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

The idea behind Retailors and B Communications 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.