Correlation Between BCD and HXRO

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

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

Diversification Opportunities for BCD and HXRO

0.65

Correlation Coefficient

BCD  HXRO

Poor diversification

The 3 months correlation between BCD and HXRO is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding BCD and HXRO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HXRO and BCD 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 BCD are associated (or correlated) with HXRO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HXRO has no effect on the direction of BCD i.e., BCD and HXRO go up and down completely randomly.

Pair Corralation between BCD and HXRO

Assuming the 90 days trading horizon BCD is expected to generate 1.98 times less return on investment than HXRO. In addition to that, BCD is 2.45 times more volatile than HXRO. It trades about 0.06 of its total potential returns per unit of risk. HXRO is currently generating about 0.27 per unit of volatility. If you would invest  23.00  in HXRO on September 3, 2024 and sell it today you would earn a total of  16.00  from holding HXRO or generate 69.57% return on investment over 90 days.

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

BCD  vs.  HXRO

BCD

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BCD are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, BCD exhibited solid returns over the last few months and may actually be approaching a breakup point.

HXRO

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HXRO are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, HXRO exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BCD and HXRO

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

The idea behind BCD and HXRO 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.