Correlation Between BFC Capital and CHS

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

By analyzing existing cross correlation between BFC Capital Trust and CHS Inc Pref, you can compare the effects of market volatilities on BFC Capital and CHS 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 BFC Capital with a short position of CHS. Check out your portfolio center. Please also check ongoing floating volatility patterns of BFC Capital and CHS.

Diversification Opportunities for BFC Capital and CHS

-0.12

Correlation Coefficient

BFC Capital  CHS

Good diversification

The 3 months correlation between BFC and CHS is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding BFC Capital Trust and CHS Inc Pref in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHS Inc Pref and BFC Capital 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 BFC Capital Trust are associated (or correlated) with CHS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHS Inc Pref has no effect on the direction of BFC Capital i.e., BFC Capital and CHS go up and down completely randomly.

Pair Corralation between BFC Capital and CHS

Assuming the 90 days horizon BFC Capital Trust is expected to under-perform the CHS. But the preferred stock apears to be less risky and, when comparing its historical volatility, BFC Capital Trust is 2.14 times less risky than CHS. The preferred stock trades about -0.23 of its potential returns per unit of risk. The CHS Inc Pref is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  3,003  in CHS Inc Pref on February 21, 2024 and sell it today you would earn a total of  69.00  from holding CHS Inc Pref or generate 2.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

BFC Capital Trust  vs.  CHS Inc Pref

BFC Capital Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BFC Capital Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, BFC Capital is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

CHS Inc Pref

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHS Inc Pref has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, CHS is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with BFC Capital and CHS

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

The idea behind BFC Capital Trust and CHS Inc Pref 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 Transaction History module to view history of all your transactions and understand their impact on performance.