Correlation Between ESSEX and Barings BDC

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

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

Diversification Opportunities for ESSEX and Barings BDC

0.04

Correlation Coefficient

ESSEX  Barings BDC

Significant diversification

The 3 months correlation between ESSEX and Barings is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding ESSEX PORTFOLIO L and Barings BDC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barings BDC and ESSEX 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 ESSEX PORTFOLIO L are associated (or correlated) with Barings BDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barings BDC has no effect on the direction of ESSEX i.e., ESSEX and Barings BDC go up and down completely randomly.

Pair Corralation between ESSEX and Barings BDC

Assuming the 90 days trading horizon ESSEX PORTFOLIO L is expected to generate 0.23 times more return on investment than Barings BDC. However, ESSEX PORTFOLIO L is 4.4 times less risky than Barings BDC. It trades about 0.16 of its potential returns per unit of risk. Barings BDC is currently generating about -0.22 per unit of risk. If you would invest  9,761  in ESSEX PORTFOLIO L on September 25, 2024 and sell it today you would earn a total of  65.00  from holding ESSEX PORTFOLIO L or generate 0.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	90.48%
Values	Daily Returns

ESSEX PORTFOLIO L  vs.  Barings BDC

ESSEX PORTFOLIO L

Risk-Adjusted Performance

0 of 100

Very Weak

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

Barings BDC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Barings BDC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Barings BDC is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ESSEX and Barings BDC

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

The idea behind ESSEX PORTFOLIO L and Barings BDC 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.