Correlation Between Boston Beer and Connecticut Light

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

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

Diversification Opportunities for Boston Beer and Connecticut Light

-0.56

Correlation Coefficient

Boston Beer  Connecticut Light

Excellent diversification

The 3 months correlation between Boston and Connecticut is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Boston Beer and The Connecticut Light in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Connecticut Light and Boston Beer 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 Boston Beer are associated (or correlated) with Connecticut Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Connecticut Light has no effect on the direction of Boston Beer i.e., Boston Beer and Connecticut Light go up and down completely randomly.

Pair Corralation between Boston Beer and Connecticut Light

Considering the 90-day investment horizon Boston Beer is expected to generate 0.89 times more return on investment than Connecticut Light. However, Boston Beer is 1.12 times less risky than Connecticut Light. It trades about 0.01 of its potential returns per unit of risk. The Connecticut Light is currently generating about -0.07 per unit of risk. If you would invest  27,374  in Boston Beer on October 11, 2024 and sell it today you would earn a total of  165.00  from holding Boston Beer or generate 0.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

Boston Beer  vs.  The Connecticut Light

Boston Beer

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Boston Beer are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Boston Beer is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Connecticut Light

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Boston Beer and Connecticut Light

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

The idea behind Boston Beer and The Connecticut Light 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.