Correlation Between Balfour Beatty and Chiba Bank

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

By analyzing existing cross correlation between Balfour Beatty plc and Chiba Bank Ltd, you can compare the effects of market volatilities on Balfour Beatty and Chiba Bank 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 Balfour Beatty with a short position of Chiba Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Balfour Beatty and Chiba Bank.

Diversification Opportunities for Balfour Beatty and Chiba Bank

0.04

Correlation Coefficient

Balfour Beatty  Chiba Bank

Significant diversification

The 3 months correlation between Balfour and Chiba is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Balfour Beatty plc and Chiba Bank Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chiba Bank and Balfour Beatty 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 Balfour Beatty plc are associated (or correlated) with Chiba Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chiba Bank has no effect on the direction of Balfour Beatty i.e., Balfour Beatty and Chiba Bank go up and down completely randomly.

Pair Corralation between Balfour Beatty and Chiba Bank

Assuming the 90 days horizon Balfour Beatty plc is expected to under-perform the Chiba Bank. In addition to that, Balfour Beatty is 2.77 times more volatile than Chiba Bank Ltd. It trades about 0.0 of its total potential returns per unit of risk. Chiba Bank Ltd is currently generating about 0.03 per unit of volatility. If you would invest  3,704  in Chiba Bank Ltd on September 18, 2024 and sell it today you would earn a total of  64.00  from holding Chiba Bank Ltd or generate 1.73% return on investment over 90 days.

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

Balfour Beatty plc  vs.  Chiba Bank Ltd

Balfour Beatty plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Balfour Beatty plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Balfour Beatty is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Chiba Bank

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Chiba Bank Ltd are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Chiba Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Balfour Beatty and Chiba Bank

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

The idea behind Balfour Beatty plc and Chiba Bank Ltd 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.