Correlation Between BH and Partron

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

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

Diversification Opportunities for BH and Partron

0.88

Correlation Coefficient

BH  Partron

Very poor diversification

The 3 months correlation between BH and Partron is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding BH Co and Partron Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Partron and BH 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 BH Co are associated (or correlated) with Partron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Partron has no effect on the direction of BH i.e., BH and Partron go up and down completely randomly.

Pair Corralation between BH and Partron

Assuming the 90 days trading horizon BH Co is expected to under-perform the Partron. In addition to that, BH is 2.48 times more volatile than Partron Co. It trades about 0.0 of its total potential returns per unit of risk. Partron Co is currently generating about 0.03 per unit of volatility. If you would invest  717,000  in Partron Co on September 3, 2024 and sell it today you would earn a total of  5,000  from holding Partron Co or generate 0.7% return on investment over 90 days.

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

BH Co  vs.  Partron Co

BH Co

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BH Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Partron

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Partron Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Partron is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BH and Partron

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

The idea behind BH Co and Partron Co 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..