Correlation Between BF Investment and Industrial Investment

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Can any of the company-specific risk be diversified away by investing in both BF Investment and Industrial Investment 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 BF Investment and Industrial Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BF Investment Limited and Industrial Investment Trust, you can compare the effects of market volatilities on BF Investment and Industrial Investment 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 BF Investment with a short position of Industrial Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of BF Investment and Industrial Investment.

Diversification Opportunities for BF Investment and Industrial Investment

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between BFINVEST and Industrial is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding BF Investment Limited and Industrial Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial Investment and BF Investment 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 BF Investment Limited are associated (or correlated) with Industrial Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial Investment has no effect on the direction of BF Investment i.e., BF Investment and Industrial Investment go up and down completely randomly.

Pair Corralation between BF Investment and Industrial Investment

Assuming the 90 days trading horizon BF Investment is expected to generate 2.63 times less return on investment than Industrial Investment. In addition to that, BF Investment is 1.84 times more volatile than Industrial Investment Trust. It trades about 0.09 of its total potential returns per unit of risk. Industrial Investment Trust is currently generating about 0.43 per unit of volatility. If you would invest  28,145  in Industrial Investment Trust on August 25, 2024 and sell it today you would earn a total of  11,360  from holding Industrial Investment Trust or generate 40.36% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

BF Investment Limited  vs.  Industrial Investment Trust

 Performance 
       Timeline  
BF Investment Limited 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in BF Investment Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, BF Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.
Industrial Investment 

Risk-Adjusted Performance

37 of 100

 
Weak
 
Strong
Very Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Investment Trust are ranked lower than 37 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Industrial Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.

BF Investment and Industrial Investment Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with BF Investment and Industrial Investment

The main advantage of trading using opposite BF Investment and Industrial Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BF Investment position performs unexpectedly, Industrial Investment 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 Industrial Investment will offset losses from the drop in Industrial Investment's long position.
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The idea behind BF Investment Limited and Industrial Investment Trust 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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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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