Correlation Between BCD and HC

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

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

Diversification Opportunities for BCD and HC

0.78

Correlation Coefficient

BCD  HC

Poor diversification

The 3 months correlation between BCD and HC is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding BCD and HC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HC and BCD 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 BCD are associated (or correlated) with HC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HC has no effect on the direction of BCD i.e., BCD and HC go up and down completely randomly.

Pair Corralation between BCD and HC

Assuming the 90 days trading horizon BCD is expected to generate 1.64 times more return on investment than HC. However, BCD is 1.64 times more volatile than HC. It trades about -0.15 of its potential returns per unit of risk. HC is currently generating about -0.33 per unit of risk. If you would invest  8.27  in BCD on March 11, 2024 and sell it today you would lose (1.75) from holding BCD or give up 21.16% of portfolio value over 90 days.

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

BCD  vs.  HC

BCD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BCD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's fundamental indicators remain rather sound which may send shares a bit higher in July 2024. The latest tumult may also be a sign of longer-term up-swing for BCD shareholders.

HC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's fundamental indicators remain rather sound which may send shares a bit higher in July 2024. The latest tumult may also be a sign of longer-term up-swing for HC shareholders.

Pair Trading with BCD and HC

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

The idea behind BCD and HC 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.