Correlation Between Best Buy and BJs Wholesale
Can any of the company-specific risk be diversified away by investing in both Best Buy and BJs Wholesale 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 Best Buy and BJs Wholesale into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Best Buy Co and BJs Wholesale Club, you can compare the effects of market volatilities on Best Buy and BJs Wholesale 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 Best Buy with a short position of BJs Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Best Buy and BJs Wholesale.
Diversification Opportunities for Best Buy and BJs Wholesale
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Best and BJs is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Best Buy Co and BJs Wholesale Club in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BJs Wholesale Club and Best Buy 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 Best Buy Co are associated (or correlated) with BJs Wholesale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BJs Wholesale Club has no effect on the direction of Best Buy i.e., Best Buy and BJs Wholesale go up and down completely randomly.
Pair Corralation between Best Buy and BJs Wholesale
Considering the 90-day investment horizon Best Buy Co is expected to under-perform the BJs Wholesale. But the stock apears to be less risky and, when comparing its historical volatility, Best Buy Co is 1.0 times less risky than BJs Wholesale. The stock trades about -0.21 of its potential returns per unit of risk. The BJs Wholesale Club is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 7,653 in BJs Wholesale Club on February 7, 2024 and sell it today you would lose (18.00) from holding BJs Wholesale Club or give up 0.24% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Best Buy Co vs. BJs Wholesale Club
Performance |
| Timeline |
| Best Buy |
| BJs Wholesale Club |
Best Buy and BJs Wholesale Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Best Buy and BJs Wholesale
The main advantage of trading using opposite Best Buy and BJs Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Best Buy position performs unexpectedly, BJs Wholesale 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 BJs Wholesale will offset losses from the drop in BJs Wholesale's long position.The idea behind Best Buy Co and BJs Wholesale Club 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.Check out your portfolio center.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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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