Correlation Between Ebro Foods and BYD

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

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

Diversification Opportunities for Ebro Foods and BYD

0.19

Correlation Coefficient

Ebro Foods  BYD

Average diversification

The 3 months correlation between Ebro and BYD is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Ebro Foods and BYD Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Co and Ebro Foods 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 Ebro Foods are associated (or correlated) with BYD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Co has no effect on the direction of Ebro Foods i.e., Ebro Foods and BYD go up and down completely randomly.

Pair Corralation between Ebro Foods and BYD

Assuming the 90 days trading horizon Ebro Foods is expected to under-perform the BYD. But the stock apears to be less risky and, when comparing its historical volatility, Ebro Foods is 13.93 times less risky than BYD. The stock trades about -0.02 of its potential returns per unit of risk. The BYD Co is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,749  in BYD Co on September 16, 2024 and sell it today you would earn a total of  811.00  from holding BYD Co or generate 29.5% return on investment over 90 days.

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

Ebro Foods  vs.  BYD Co

Ebro Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ebro Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Ebro Foods is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

BYD Co

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, BYD unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ebro Foods and BYD

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

The idea behind Ebro Foods and BYD 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.