Correlation Between True North and BTB Real

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

By analyzing existing cross correlation between True North Commercial and BTB Real Estate, you can compare the effects of market volatilities on True North and BTB Real 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 True North with a short position of BTB Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of True North and BTB Real.

Diversification Opportunities for True North and BTB Real

0.24

Correlation Coefficient

True North  BTB Real

Modest diversification

The 3 months correlation between True and BTB is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding True North Commercial and BTB Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BTB Real Estate and True North 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 True North Commercial are associated (or correlated) with BTB Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BTB Real Estate has no effect on the direction of True North i.e., True North and BTB Real go up and down completely randomly.

Pair Corralation between True North and BTB Real

Assuming the 90 days trading horizon True North Commercial is expected to generate 4.3 times more return on investment than BTB Real. However, True North is 4.3 times more volatile than BTB Real Estate. It trades about 0.02 of its potential returns per unit of risk. BTB Real Estate is currently generating about 0.01 per unit of risk. If you would invest  991.00  in True North Commercial on December 30, 2024 and sell it today you would earn a total of  3.00  from holding True North Commercial or generate 0.3% return on investment over 90 days.

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

True North Commercial  vs.  BTB Real Estate

True North Commercial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in True North Commercial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, True North is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

BTB Real Estate

Risk-Adjusted Performance

Very Weak

Over the last 90 days BTB Real Estate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, BTB Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with True North and BTB Real

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

The idea behind True North Commercial and BTB Real Estate 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.