Correlation Between POSCO Holdings and BAB

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Can any of the company-specific risk be diversified away by investing in both POSCO Holdings and BAB 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 POSCO Holdings and BAB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between POSCO Holdings and BAB Inc, you can compare the effects of market volatilities on POSCO Holdings and BAB 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 POSCO Holdings with a short position of BAB. Check out your portfolio center. Please also check ongoing floating volatility patterns of POSCO Holdings and BAB.

Diversification Opportunities for POSCO Holdings and BAB

-0.42
  Correlation Coefficient

Very good diversification

The 3 months correlation between POSCO and BAB is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding POSCO Holdings and BAB Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BAB Inc and POSCO Holdings 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 POSCO Holdings are associated (or correlated) with BAB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BAB Inc has no effect on the direction of POSCO Holdings i.e., POSCO Holdings and BAB go up and down completely randomly.

Pair Corralation between POSCO Holdings and BAB

Considering the 90-day investment horizon POSCO Holdings is expected to generate 0.85 times more return on investment than BAB. However, POSCO Holdings is 1.18 times less risky than BAB. It trades about -0.02 of its potential returns per unit of risk. BAB Inc is currently generating about -0.07 per unit of risk. If you would invest  7,368  in POSCO Holdings on February 11, 2024 and sell it today you would lose (82.00) from holding POSCO Holdings or give up 1.11% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

POSCO Holdings  vs.  BAB Inc

 Performance 
       Timeline  
POSCO Holdings 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days POSCO Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward-looking signals remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
BAB Inc 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in BAB Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, BAB is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

POSCO Holdings and BAB Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with POSCO Holdings and BAB

The main advantage of trading using opposite POSCO Holdings and BAB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if POSCO Holdings position performs unexpectedly, BAB 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 BAB will offset losses from the drop in BAB's long position.
The idea behind POSCO Holdings and BAB Inc 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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