Correlation Between Business Online and Greencoat
Can any of the company-specific risk be diversified away by investing in both Business Online and Greencoat 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 Business Online and Greencoat into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Business Online PCL and Greencoat UK Wind, you can compare the effects of market volatilities on Business Online and Greencoat 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 Business Online with a short position of Greencoat. Check out your portfolio center. Please also check ongoing floating volatility patterns of Business Online and Greencoat.
Diversification Opportunities for Business Online and Greencoat
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Business and Greencoat is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Business Online PCL and Greencoat UK Wind in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Greencoat UK Wind and Business Online 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 Business Online PCL are associated (or correlated) with Greencoat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Greencoat UK Wind has no effect on the direction of Business Online i.e., Business Online and Greencoat go up and down completely randomly.
Pair Corralation between Business Online and Greencoat
Assuming the 90 days trading horizon Business Online PCL is expected to under-perform the Greencoat. In addition to that, Business Online is 1.03 times more volatile than Greencoat UK Wind. It trades about -0.05 of its total potential returns per unit of risk. Greencoat UK Wind is currently generating about -0.03 per unit of volatility. If you would invest 140.00 in Greencoat UK Wind on November 27, 2024 and sell it today you would lose (3.00) from holding Greencoat UK Wind or give up 2.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 90.91% |
| Values | Daily Returns |
Business Online PCL vs. Greencoat UK Wind
Performance |
| Timeline |
| Business Online PCL |
| Greencoat UK Wind |
Business Online and Greencoat Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Business Online and Greencoat
The main advantage of trading using opposite Business Online and Greencoat positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Business Online position performs unexpectedly, Greencoat 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 Greencoat will offset losses from the drop in Greencoat's long position.The idea behind Business Online PCL and Greencoat UK Wind 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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