Correlation Between American Business and BEO Bancorp

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

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

Diversification Opportunities for American Business and BEO Bancorp

-0.05

Correlation Coefficient

American Business  BEO Bancorp

Good diversification

The 3 months correlation between American and BEO is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding American Business Bk and BEO Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BEO Bancorp and American Business 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 American Business Bk are associated (or correlated) with BEO Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BEO Bancorp has no effect on the direction of American Business i.e., American Business and BEO Bancorp go up and down completely randomly.

Pair Corralation between American Business and BEO Bancorp

Given the investment horizon of 90 days American Business Bk is expected to generate 0.66 times more return on investment than BEO Bancorp. However, American Business Bk is 1.52 times less risky than BEO Bancorp. It trades about 0.4 of its potential returns per unit of risk. BEO Bancorp is currently generating about -0.02 per unit of risk. If you would invest  3,500  in American Business Bk on September 14, 2024 and sell it today you would earn a total of  910.00  from holding American Business Bk or generate 26.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

American Business Bk  vs.  BEO Bancorp

American Business

Risk-Adjusted Performance

31 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in American Business Bk are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, American Business showed solid returns over the last few months and may actually be approaching a breakup point.

BEO Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with American Business and BEO Bancorp

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

The idea behind American Business Bk and BEO Bancorp 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.