Correlation Between BCE and Firm Capital

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

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

Diversification Opportunities for BCE and Firm Capital

-0.36

Correlation Coefficient

BCE  Firm Capital

Very good diversification

The 3 months correlation between BCE and Firm is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding BCE Inc and Firm Capital Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Firm Capital Mortgage and BCE 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 BCE Inc are associated (or correlated) with Firm Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Firm Capital Mortgage has no effect on the direction of BCE i.e., BCE and Firm Capital go up and down completely randomly.

Pair Corralation between BCE and Firm Capital

Assuming the 90 days trading horizon BCE Inc is expected to under-perform the Firm Capital. In addition to that, BCE is 1.23 times more volatile than Firm Capital Mortgage. It trades about -0.1 of its total potential returns per unit of risk. Firm Capital Mortgage is currently generating about 0.12 per unit of volatility. If you would invest  1,030  in Firm Capital Mortgage on September 12, 2024 and sell it today you would earn a total of  158.00  from holding Firm Capital Mortgage or generate 15.34% return on investment over 90 days.

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

BCE Inc  vs.  Firm Capital Mortgage

BCE Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BCE Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Firm Capital Mortgage

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Firm Capital Mortgage are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Firm Capital is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BCE and Firm Capital

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

The idea behind BCE Inc and Firm Capital Mortgage 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.