Correlation Between Biokarpet and Selected Textiles
Can any of the company-specific risk be diversified away by investing in both Biokarpet and Selected Textiles 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 Biokarpet and Selected Textiles into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Biokarpet SA and Selected Textiles SA, you can compare the effects of market volatilities on Biokarpet and Selected Textiles 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 Biokarpet with a short position of Selected Textiles. Check out your portfolio center. Please also check ongoing floating volatility patterns of Biokarpet and Selected Textiles.
Diversification Opportunities for Biokarpet and Selected Textiles
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Biokarpet and Selected is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Biokarpet SA and Selected Textiles SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Selected Textiles and Biokarpet 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 Biokarpet SA are associated (or correlated) with Selected Textiles. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Selected Textiles has no effect on the direction of Biokarpet i.e., Biokarpet and Selected Textiles go up and down completely randomly.
Pair Corralation between Biokarpet and Selected Textiles
Assuming the 90 days trading horizon Biokarpet is expected to generate 16.14 times less return on investment than Selected Textiles. But when comparing it to its historical volatility, Biokarpet SA is 3.22 times less risky than Selected Textiles. It trades about 0.17 of its potential returns per unit of risk. Selected Textiles SA is currently generating about 0.86 of returns per unit of risk over similar time horizon. If you would invest 11.00 in Selected Textiles SA on August 27, 2024 and sell it today you would earn a total of 2.00 from holding Selected Textiles SA or generate 18.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 20.0% |
| Values | Daily Returns |
Biokarpet SA vs. Selected Textiles SA
Performance |
| Timeline |
| Biokarpet SA |
| Selected Textiles |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Modest
Biokarpet and Selected Textiles Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Biokarpet and Selected Textiles
The main advantage of trading using opposite Biokarpet and Selected Textiles positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Biokarpet position performs unexpectedly, Selected Textiles 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 Selected Textiles will offset losses from the drop in Selected Textiles' long position.The idea behind Biokarpet SA and Selected Textiles SA 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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