Correlation Between Maschinenfabrik Berthold and Brother Industries

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

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

Diversification Opportunities for Maschinenfabrik Berthold and Brother Industries

0.56

Correlation Coefficient

Maschinenfabrik Berthold  Brother Industries

Very weak diversification

The 3 months correlation between Maschinenfabrik and Brother is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Maschinenfabrik Berthold Herml and Brother Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brother Industries and Maschinenfabrik Berthold 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 Maschinenfabrik Berthold Hermle are associated (or correlated) with Brother Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brother Industries has no effect on the direction of Maschinenfabrik Berthold i.e., Maschinenfabrik Berthold and Brother Industries go up and down completely randomly.

Pair Corralation between Maschinenfabrik Berthold and Brother Industries

Assuming the 90 days trading horizon Maschinenfabrik Berthold Hermle is expected to under-perform the Brother Industries. But the stock apears to be less risky and, when comparing its historical volatility, Maschinenfabrik Berthold Hermle is 1.02 times less risky than Brother Industries. The stock trades about -0.17 of its potential returns per unit of risk. The Brother Industries is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,710  in Brother Industries on September 13, 2024 and sell it today you would lose (30.00) from holding Brother Industries or give up 1.75% of portfolio value over 90 days.

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

Maschinenfabrik Berthold Herml  vs.  Brother Industries

Maschinenfabrik Berthold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Maschinenfabrik Berthold Hermle has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Brother Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Maschinenfabrik Berthold and Brother Industries

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

The idea behind Maschinenfabrik Berthold Hermle and Brother Industries 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.