Correlation Between Spot Coffee and Bt Brands

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

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

Diversification Opportunities for Spot Coffee and Bt Brands

0.38

Correlation Coefficient

Spot Coffee  Bt Brands

Weak diversification

The 3 months correlation between Spot and BTBD is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Spot Coffee and Bt Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bt Brands and Spot Coffee 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 Spot Coffee are associated (or correlated) with Bt Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bt Brands has no effect on the direction of Spot Coffee i.e., Spot Coffee and Bt Brands go up and down completely randomly.

Pair Corralation between Spot Coffee and Bt Brands

Assuming the 90 days horizon Spot Coffee is expected to generate 5.96 times more return on investment than Bt Brands. However, Spot Coffee is 5.96 times more volatile than Bt Brands. It trades about 0.27 of its potential returns per unit of risk. Bt Brands is currently generating about 0.13 per unit of risk. If you would invest  0.10  in Spot Coffee on October 26, 2024 and sell it today you would earn a total of  0.13  from holding Spot Coffee or generate 130.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

Spot Coffee  vs.  Bt Brands

Spot Coffee

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Spot Coffee are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Spot Coffee reported solid returns over the last few months and may actually be approaching a breakup point.

Bt Brands

Risk-Adjusted Performance

3 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bt Brands are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental drivers, Bt Brands exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spot Coffee and Bt Brands

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

The idea behind Spot Coffee and Bt Brands 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.