Correlation Between Bank of the and Figaro Coffee

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

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

Diversification Opportunities for Bank of the and Figaro Coffee

0.46

Correlation Coefficient

Bank of the  Figaro Coffee

Very weak diversification

The 3 months correlation between Bank and Figaro is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Bank of the and Figaro Coffee Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Figaro Coffee Group and Bank of the 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 Bank of the are associated (or correlated) with Figaro Coffee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Figaro Coffee Group has no effect on the direction of Bank of the i.e., Bank of the and Figaro Coffee go up and down completely randomly.

Pair Corralation between Bank of the and Figaro Coffee

Assuming the 90 days trading horizon Bank of the is expected to generate 1.63 times less return on investment than Figaro Coffee. But when comparing it to its historical volatility, Bank of the is 1.41 times less risky than Figaro Coffee. It trades about 0.04 of its potential returns per unit of risk. Figaro Coffee Group is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  62.00  in Figaro Coffee Group on September 12, 2024 and sell it today you would earn a total of  21.00  from holding Figaro Coffee Group or generate 33.87% return on investment over 90 days.

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

Bank of the  vs.  Figaro Coffee Group

Bank of the

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of the are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Bank of the may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Figaro Coffee Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Figaro Coffee Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Figaro Coffee may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Bank of the and Figaro Coffee

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

The idea behind Bank of the and Figaro Coffee Group 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.