Correlation Between Challenger and Block

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

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

Diversification Opportunities for Challenger and Block

-0.48

Correlation Coefficient

Challenger  Block

Very good diversification

The 3 months correlation between Challenger and Block is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Challenger and Block Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Block Inc and Challenger 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 Challenger are associated (or correlated) with Block. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Block Inc has no effect on the direction of Challenger i.e., Challenger and Block go up and down completely randomly.

Pair Corralation between Challenger and Block

Assuming the 90 days trading horizon Challenger is expected to under-perform the Block. But the stock apears to be less risky and, when comparing its historical volatility, Challenger is 1.29 times less risky than Block. The stock trades about -0.1 of its potential returns per unit of risk. The Block Inc is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  9,799  in Block Inc on September 3, 2024 and sell it today you would earn a total of  4,032  from holding Block Inc or generate 41.15% return on investment over 90 days.

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

Challenger  vs.  Block Inc

Challenger

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Challenger has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Block Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Block Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Block unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Challenger and Block

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

The idea behind Challenger and Block Inc 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.