Correlation Between BCN and FTC
Can any of the company-specific risk be diversified away by investing in both BCN and FTC 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 BCN and FTC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BCN and FTC, you can compare the effects of market volatilities on BCN and FTC 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 BCN with a short position of FTC. Check out your portfolio center. Please also check ongoing floating volatility patterns of BCN and FTC.
Diversification Opportunities for BCN and FTC
Very good diversification
The 3 months correlation between BCN and FTC is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding BCN and FTC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FTC and BCN 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 BCN are associated (or correlated) with FTC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FTC has no effect on the direction of BCN i.e., BCN and FTC go up and down completely randomly.
Pair Corralation between BCN and FTC
Assuming the 90 days trading horizon BCN is expected to generate 50.63 times more return on investment than FTC. However, BCN is 50.63 times more volatile than FTC. It trades about 0.33 of its potential returns per unit of risk. FTC is currently generating about 0.03 per unit of risk. If you would invest 0.05 in BCN on August 31, 2024 and sell it today you would lose (0.05) from holding BCN or give up 95.47% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.42% |
| Values | Daily Returns |
BCN vs. FTC
Performance |
| Timeline |
| BCN |
| FTC |
BCN and FTC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BCN and FTC
The main advantage of trading using opposite BCN and FTC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BCN position performs unexpectedly, FTC 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 FTC will offset losses from the drop in FTC's long position.The idea behind BCN and FTC 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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