Correlation Between BF Investment and Investment Trust

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Can any of the company-specific risk be diversified away by investing in both BF Investment and Investment Trust 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 Investment Trust 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 The Investment Trust, you can compare the effects of market volatilities on BF Investment and Investment Trust 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 Investment Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of BF Investment and Investment Trust.

Diversification Opportunities for BF Investment and Investment Trust

0.7
  Correlation Coefficient

Poor diversification

The 3 months correlation between BFINVEST and Investment is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding BF Investment Limited and The Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investment Trust 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 Investment Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investment Trust has no effect on the direction of BF Investment i.e., BF Investment and Investment Trust go up and down completely randomly.

Pair Corralation between BF Investment and Investment Trust

Assuming the 90 days trading horizon BF Investment Limited is expected to generate 1.01 times more return on investment than Investment Trust. However, BF Investment is 1.01 times more volatile than The Investment Trust. It trades about 0.22 of its potential returns per unit of risk. The Investment Trust is currently generating about -0.08 per unit of risk. If you would invest  65,065  in BF Investment Limited on September 1, 2024 and sell it today you would earn a total of  8,215  from holding BF Investment Limited or generate 12.63% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

BF Investment Limited  vs.  The Investment Trust

 Performance 
       Timeline  
BF Investment Limited 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in BF Investment Limited are ranked lower than 10 (%) 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.
Investment Trust 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in The Investment Trust are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Investment Trust may actually be approaching a critical reversion point that can send shares even higher in December 2024.

BF Investment and Investment Trust Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with BF Investment and Investment Trust

The main advantage of trading using opposite BF Investment and Investment Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BF Investment position performs unexpectedly, Investment Trust 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 Investment Trust will offset losses from the drop in Investment Trust's long position.
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The idea behind BF Investment Limited and The 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.

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