Correlation Between Boston Beer and Jacobs Solutions

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

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

Diversification Opportunities for Boston Beer and Jacobs Solutions

0.63

Correlation Coefficient

Boston Beer  Jacobs Solutions

Poor diversification

The 3 months correlation between Boston and Jacobs is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Boston Beer and Jacobs Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jacobs Solutions and Boston Beer 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 Boston Beer are associated (or correlated) with Jacobs Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jacobs Solutions has no effect on the direction of Boston Beer i.e., Boston Beer and Jacobs Solutions go up and down completely randomly.

Pair Corralation between Boston Beer and Jacobs Solutions

Considering the 90-day investment horizon Boston Beer is expected to generate 1.0 times more return on investment than Jacobs Solutions. However, Boston Beer is 1.0 times more volatile than Jacobs Solutions. It trades about 0.18 of its potential returns per unit of risk. Jacobs Solutions is currently generating about 0.14 per unit of risk. If you would invest  26,934  in Boston Beer on September 13, 2024 and sell it today you would earn a total of  4,949  from holding Boston Beer or generate 18.37% return on investment over 90 days.

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

Boston Beer  vs.  Jacobs Solutions

Boston Beer

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Boston Beer are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Boston Beer displayed solid returns over the last few months and may actually be approaching a breakup point.

Jacobs Solutions

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jacobs Solutions are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward-looking indicators, Jacobs Solutions revealed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Boston Beer and Jacobs Solutions

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

The idea behind Boston Beer and Jacobs Solutions 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.