Correlation Between United States and BBB Foods

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

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

Diversification Opportunities for United States and BBB Foods

0.49

Correlation Coefficient

United States  BBB Foods

Very weak diversification

The 3 months correlation between United and BBB is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and BBB Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BBB Foods and United States 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 United States Steel are associated (or correlated) with BBB Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BBB Foods has no effect on the direction of United States i.e., United States and BBB Foods go up and down completely randomly.

Pair Corralation between United States and BBB Foods

Taking into account the 90-day investment horizon United States is expected to generate 3.01 times less return on investment than BBB Foods. In addition to that, United States is 1.02 times more volatile than BBB Foods. It trades about 0.03 of its total potential returns per unit of risk. BBB Foods is currently generating about 0.09 per unit of volatility. If you would invest  1,750  in BBB Foods on September 26, 2024 and sell it today you would earn a total of  1,220  from holding BBB Foods or generate 69.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	44.76%
Values	Daily Returns

United States Steel  vs.  BBB Foods

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

BBB Foods

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with United States and BBB Foods

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

The idea behind United States Steel and BBB Foods 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..