Correlation Between Benchmark Botanics and Now Corp

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

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

Diversification Opportunities for Benchmark Botanics and Now Corp

0.0

Correlation Coefficient

Benchmark Botanics  Now Corp

Pay attention - limited upside

The 3 months correlation between Benchmark and Now is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Benchmark Botanics and Now Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Now Corp and Benchmark Botanics 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 Benchmark Botanics are associated (or correlated) with Now Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Now Corp has no effect on the direction of Benchmark Botanics i.e., Benchmark Botanics and Now Corp go up and down completely randomly.

Pair Corralation between Benchmark Botanics and Now Corp

Assuming the 90 days horizon Benchmark Botanics is expected to generate 23.69 times less return on investment than Now Corp. But when comparing it to its historical volatility, Benchmark Botanics is 5.71 times less risky than Now Corp. It trades about 0.04 of its potential returns per unit of risk. Now Corp is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  0.03  in Now Corp on September 4, 2024 and sell it today you would lose (0.02) from holding Now Corp or give up 66.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Benchmark Botanics  vs.  Now Corp

Benchmark Botanics

Risk-Adjusted Performance

0 of 100

Very Weak

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

Now Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Now Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Now Corp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Benchmark Botanics and Now Corp

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

The idea behind Benchmark Botanics and Now Corp 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.