Correlation Between BH and Innometry

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

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

Diversification Opportunities for BH and Innometry

0.71

Correlation Coefficient

BH  Innometry

Poor diversification

The 3 months correlation between BH and Innometry is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding BH Co and Innometry Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innometry 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 Innometry. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innometry has no effect on the direction of BH i.e., BH and Innometry go up and down completely randomly.

Pair Corralation between BH and Innometry

Assuming the 90 days trading horizon BH Co is expected to under-perform the Innometry. In addition to that, BH is 1.25 times more volatile than Innometry Co. It trades about -0.15 of its total potential returns per unit of risk. Innometry Co is currently generating about -0.16 per unit of volatility. If you would invest  1,061,000  in Innometry Co on August 31, 2024 and sell it today you would lose (259,000) from holding Innometry Co or give up 24.41% of portfolio value over 90 days.

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

BH Co  vs.  Innometry 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 December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Innometry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Innometry 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 December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with BH and Innometry

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

The idea behind BH Co and Innometry 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.