Correlation Between Brand and Spring Ventures

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

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

Diversification Opportunities for Brand and Spring Ventures

-0.61

Correlation Coefficient

Brand  Spring Ventures

Excellent diversification

The 3 months correlation between Brand and Spring is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Brand Group and Spring Ventures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spring Ventures and Brand 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 Brand Group are associated (or correlated) with Spring Ventures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spring Ventures has no effect on the direction of Brand i.e., Brand and Spring Ventures go up and down completely randomly.

Pair Corralation between Brand and Spring Ventures

Assuming the 90 days trading horizon Brand Group is expected to generate 0.63 times more return on investment than Spring Ventures. However, Brand Group is 1.59 times less risky than Spring Ventures. It trades about 0.23 of its potential returns per unit of risk. Spring Ventures is currently generating about -0.12 per unit of risk. If you would invest  22,880  in Brand Group on September 24, 2024 and sell it today you would earn a total of  5,920  from holding Brand Group or generate 25.87% return on investment over 90 days.

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

Brand Group  vs.  Spring Ventures

Brand Group

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Brand Group are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Brand sustained solid returns over the last few months and may actually be approaching a breakup point.

Spring Ventures

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spring Ventures has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Brand and Spring Ventures

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

The idea behind Brand Group and Spring Ventures 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.