Correlation Between Cintas and BQE Water

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

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

Diversification Opportunities for Cintas and BQE Water

0.56

Correlation Coefficient

Cintas  BQE Water

Very weak diversification

The 3 months correlation between Cintas and BQE is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Cintas and BQE Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BQE Water and Cintas 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 Cintas are associated (or correlated) with BQE Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BQE Water has no effect on the direction of Cintas i.e., Cintas and BQE Water go up and down completely randomly.

Pair Corralation between Cintas and BQE Water

Given the investment horizon of 90 days Cintas is expected to under-perform the BQE Water. But the stock apears to be less risky and, when comparing its historical volatility, Cintas is 15.77 times less risky than BQE Water. The stock trades about -0.11 of its potential returns per unit of risk. The BQE Water is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  2,500  in BQE Water on February 2, 2024 and sell it today you would earn a total of  1,825  from holding BQE Water or generate 73.0% return on investment over 90 days.

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

Cintas  vs.  BQE Water

Cintas

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cintas are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Cintas may actually be approaching a critical reversion point that can send shares even higher in June 2024.

BQE Water

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BQE Water are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, BQE Water reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cintas and BQE Water

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

The idea behind Cintas and BQE Water 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .