Correlation Between SafePal and BCN

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

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

Diversification Opportunities for SafePal and BCN

0.26

Correlation Coefficient

SafePal  BCN

Modest diversification

The 3 months correlation between SafePal and BCN is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding SafePal and BCN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BCN and SafePal 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 SafePal are associated (or correlated) with BCN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BCN has no effect on the direction of SafePal i.e., SafePal and BCN go up and down completely randomly.

Pair Corralation between SafePal and BCN

Assuming the 90 days trading horizon SafePal is expected to generate 1629.82 times less return on investment than BCN. But when comparing it to its historical volatility, SafePal is 91.61 times less risky than BCN. It trades about 0.02 of its potential returns per unit of risk. BCN is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  0.02  in BCN on September 1, 2024 and sell it today you would lose (0.02) from holding BCN or give up 89.57% of portfolio value over 90 days.

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

SafePal  vs.  BCN

SafePal

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SafePal are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, SafePal is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

BCN

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BCN are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, BCN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SafePal and BCN

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

The idea behind SafePal and BCN 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.