Correlation Between BBB Foods and Bowhead Specialty

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

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

Diversification Opportunities for BBB Foods and Bowhead Specialty

-0.01

Correlation Coefficient

BBB Foods  Bowhead Specialty

Good diversification

The 3 months correlation between BBB and Bowhead is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding BBB Foods and Bowhead Specialty Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bowhead Specialty and BBB Foods 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 BBB Foods are associated (or correlated) with Bowhead Specialty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bowhead Specialty has no effect on the direction of BBB Foods i.e., BBB Foods and Bowhead Specialty go up and down completely randomly.

Pair Corralation between BBB Foods and Bowhead Specialty

Given the investment horizon of 90 days BBB Foods is expected to under-perform the Bowhead Specialty. In addition to that, BBB Foods is 1.01 times more volatile than Bowhead Specialty Holdings. It trades about -0.44 of its total potential returns per unit of risk. Bowhead Specialty Holdings is currently generating about 0.15 per unit of volatility. If you would invest  3,251  in Bowhead Specialty Holdings on December 4, 2024 and sell it today you would earn a total of  208.00  from holding Bowhead Specialty Holdings or generate 6.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

BBB Foods  vs.  Bowhead Specialty Holdings

BBB Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days BBB Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Bowhead Specialty

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bowhead Specialty Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Bowhead Specialty is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with BBB Foods and Bowhead Specialty

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

The idea behind BBB Foods and Bowhead Specialty Holdings 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.