Correlation Between CHS and BFC Capital

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

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

Diversification Opportunities for CHS and BFC Capital

-0.03

Correlation Coefficient

CHS  BFC Capital

Good diversification

The 3 months correlation between CHS and BFC is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding CHS Inc CL and BFC Capital Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BFC Capital Trust and CHS 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 CHS Inc CL are associated (or correlated) with BFC Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BFC Capital Trust has no effect on the direction of CHS i.e., CHS and BFC Capital go up and down completely randomly.

Pair Corralation between CHS and BFC Capital

Assuming the 90 days horizon CHS is expected to generate 9.05 times less return on investment than BFC Capital. But when comparing it to its historical volatility, CHS Inc CL is 1.55 times less risky than BFC Capital. It trades about 0.01 of its potential returns per unit of risk. BFC Capital Trust is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,552  in BFC Capital Trust on September 16, 2024 and sell it today you would earn a total of  82.00  from holding BFC Capital Trust or generate 3.21% return on investment over 90 days.

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

CHS Inc CL  vs.  BFC Capital Trust

CHS Inc CL

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CHS Inc CL are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, CHS is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

BFC Capital Trust

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BFC Capital Trust are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, BFC Capital is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with CHS and BFC Capital

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

The idea behind CHS Inc CL and BFC Capital Trust 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.