Correlation Between ABB and Dave Busters

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

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

Diversification Opportunities for ABB and Dave Busters

0.44

Correlation Coefficient

ABB  Dave Busters

Very weak diversification

The 3 months correlation between ABB and Dave is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding ABB and Dave Busters Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dave Busters Enterta and ABB 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 ABB are associated (or correlated) with Dave Busters. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dave Busters Enterta has no effect on the direction of ABB i.e., ABB and Dave Busters go up and down completely randomly.

Pair Corralation between ABB and Dave Busters

Assuming the 90 days trading horizon ABB is expected to generate 0.62 times more return on investment than Dave Busters. However, ABB is 1.62 times less risky than Dave Busters. It trades about 0.09 of its potential returns per unit of risk. Dave Busters Entertainment is currently generating about 0.01 per unit of risk. If you would invest  2,672  in ABB on September 14, 2024 and sell it today you would earn a total of  2,878  from holding ABB or generate 107.71% return on investment over 90 days.

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

ABB  vs.  Dave Busters Entertainment

ABB

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ABB are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking indicators, ABB reported solid returns over the last few months and may actually be approaching a breakup point.

Dave Busters Enterta

Risk-Adjusted Performance

2 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dave Busters Entertainment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Dave Busters may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ABB and Dave Busters

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

The idea behind ABB and Dave Busters Entertainment 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.