Correlation Between BAB and Branded Legacy
Can any of the company-specific risk be diversified away by investing in both BAB and Branded Legacy 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 BAB and Branded Legacy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BAB Inc and Branded Legacy, you can compare the effects of market volatilities on BAB and Branded Legacy 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 BAB with a short position of Branded Legacy. Check out your portfolio center. Please also check ongoing floating volatility patterns of BAB and Branded Legacy.
Diversification Opportunities for BAB and Branded Legacy
-0.48 | Correlation Coefficient |
Very good diversification
The 3 months correlation between BAB and Branded is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding BAB Inc and Branded Legacy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Branded Legacy and BAB 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 BAB Inc are associated (or correlated) with Branded Legacy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Branded Legacy has no effect on the direction of BAB i.e., BAB and Branded Legacy go up and down completely randomly.
Pair Corralation between BAB and Branded Legacy
Given the investment horizon of 90 days BAB is expected to generate 7.91 times less return on investment than Branded Legacy. But when comparing it to its historical volatility, BAB Inc is 5.36 times less risky than Branded Legacy. It trades about 0.04 of its potential returns per unit of risk. Branded Legacy is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 0.30 in Branded Legacy on September 2, 2024 and sell it today you would lose (0.20) from holding Branded Legacy or give up 66.67% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.56% |
| Values | Daily Returns |
BAB Inc vs. Branded Legacy
Performance |
| Timeline |
| BAB Inc |
| Branded Legacy |
BAB and Branded Legacy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BAB and Branded Legacy
The main advantage of trading using opposite BAB and Branded Legacy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BAB position performs unexpectedly, Branded Legacy 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 Branded Legacy will offset losses from the drop in Branded Legacy's long position.The idea behind BAB Inc and Branded Legacy 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.| Branded Legacy vs. The A2 Milk | Branded Legacy vs. Artisan Consumer Goods | Branded Legacy vs. General Mills |
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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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