Correlation Between BAKER and Deluxe

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

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

Diversification Opportunities for BAKER and Deluxe

-0.6

Correlation Coefficient

BAKER  Deluxe

Excellent diversification

The 3 months correlation between BAKER and Deluxe is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding BAKER HUGHES A and Deluxe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deluxe and BAKER 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 BAKER HUGHES A are associated (or correlated) with Deluxe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deluxe has no effect on the direction of BAKER i.e., BAKER and Deluxe go up and down completely randomly.

Pair Corralation between BAKER and Deluxe

Assuming the 90 days trading horizon BAKER HUGHES A is expected to generate 0.67 times more return on investment than Deluxe. However, BAKER HUGHES A is 1.48 times less risky than Deluxe. It trades about 0.02 of its potential returns per unit of risk. Deluxe is currently generating about -0.08 per unit of risk. If you would invest  8,198  in BAKER HUGHES A on September 25, 2024 and sell it today you would earn a total of  23.00  from holding BAKER HUGHES A or generate 0.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	85.71%
Values	Daily Returns

BAKER HUGHES A  vs.  Deluxe

BAKER HUGHES A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BAKER HUGHES A has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BAKER is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Deluxe

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deluxe are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady essential indicators, Deluxe showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BAKER and Deluxe

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

The idea behind BAKER HUGHES A and Deluxe 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.