Correlation Between SP Preferred and BCE

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

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

Diversification Opportunities for SP Preferred and BCE

0.75

Correlation Coefficient

SP Preferred  BCE

Poor diversification

The 3 months correlation between SPPREF and BCE is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding SP Preferred Stock and BCE Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BCE Inc and SP Preferred 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 SP Preferred Stock are associated (or correlated) with BCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BCE Inc has no effect on the direction of SP Preferred i.e., SP Preferred and BCE go up and down completely randomly.

Pair Corralation between SP Preferred and BCE

Assuming the 90 days trading horizon SP Preferred Stock is expected to generate 0.4 times more return on investment than BCE. However, SP Preferred Stock is 2.48 times less risky than BCE. It trades about 0.06 of its potential returns per unit of risk. BCE Inc is currently generating about -0.11 per unit of risk. If you would invest  62,403  in SP Preferred Stock on September 15, 2024 and sell it today you would earn a total of  4,513  from holding SP Preferred Stock or generate 7.23% return on investment over 90 days.

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

SP Preferred Stock  vs.  BCE Inc

Pair Trading with SP Preferred and BCE

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

The idea behind SP Preferred Stock and BCE Inc 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.