Big Bird Foods Stock EBITDA
BBFL Stock | 59.04 2.09 3.67% |
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Pair Trading with Big Bird
One of the main advantages of trading using pair correlations is that every trade hedges away some risk. Because there are two separate transactions required, even if Big Bird position performs unexpectedly, the other equity 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 Big Bird will appreciate offsetting losses from the drop in the long position's value.The ability to find closely correlated positions to Big Bird could be a great tool in your tax-loss harvesting strategies, allowing investors a quick way to find a similar-enough asset to replace Big Bird when you sell it. If you don't do this, your portfolio allocation will be skewed against your target asset allocation. So, investors can't just sell and buy back Big Bird - that would be a violation of the tax code under the "wash sale" rule, and this is why you need to find a similar enough asset and use the proceeds from selling Big Bird Foods to buy it.
The correlation of Big Bird is a statistical measure of how it moves in relation to other instruments. This measure is expressed in what is known as the correlation coefficient, which ranges between -1 and +1. A perfect positive correlation (i.e., a correlation coefficient of +1) implies that as Big Bird moves, either up or down, the other security will move in the same direction. Alternatively, perfect negative correlation means that if Big Bird Foods moves in either direction, the perfectly negatively correlated security will move in the opposite direction. If the correlation is 0, the equities are not correlated; they are entirely random. A correlation greater than 0.8 is generally described as strong, whereas a correlation less than 0.5 is generally considered weak.
Correlation analysis and pair trading evaluation for Big Bird can also be used as hedging techniques within a particular sector or industry or even over random equities to generate a better risk-adjusted return on your portfolios.