Correlation Between Home Product and BTS Group

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

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

Diversification Opportunities for Home Product and BTS Group

-0.66

Correlation Coefficient

Home Product  BTS Group

Excellent diversification

The 3 months correlation between Home and BTS is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Home Product Center and BTS Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BTS Group Holdings and Home Product 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 Home Product Center are associated (or correlated) with BTS Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BTS Group Holdings has no effect on the direction of Home Product i.e., Home Product and BTS Group go up and down completely randomly.

Pair Corralation between Home Product and BTS Group

Assuming the 90 days trading horizon Home Product Center is expected to under-perform the BTS Group. But the stock apears to be less risky and, when comparing its historical volatility, Home Product Center is 1.01 times less risky than BTS Group. The stock trades about -0.11 of its potential returns per unit of risk. The BTS Group Holdings is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  466.00  in BTS Group Holdings on September 24, 2024 and sell it today you would earn a total of  94.00  from holding BTS Group Holdings or generate 20.17% return on investment over 90 days.

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

Home Product Center  vs.  BTS Group Holdings

Home Product Center

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home Product Center has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

BTS Group Holdings

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BTS Group Holdings are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, BTS Group disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Product and BTS Group

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

The idea behind Home Product Center and BTS Group Holdings 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.