Correlation Between Cars and BBB Foods
Can any of the company-specific risk be diversified away by investing in both Cars and BBB Foods 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 Cars and BBB Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cars Inc and BBB Foods, you can compare the effects of market volatilities on Cars and BBB Foods 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 Cars with a short position of BBB Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cars and BBB Foods.
Diversification Opportunities for Cars and BBB Foods
Average diversification
The 3 months correlation between Cars and BBB is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and BBB Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BBB Foods and Cars 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 Cars Inc are associated (or correlated) with BBB Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BBB Foods has no effect on the direction of Cars i.e., Cars and BBB Foods go up and down completely randomly.
Pair Corralation between Cars and BBB Foods
Given the investment horizon of 90 days Cars is expected to generate 12.5 times less return on investment than BBB Foods. But when comparing it to its historical volatility, Cars Inc is 1.35 times less risky than BBB Foods. It trades about 0.01 of its potential returns per unit of risk. BBB Foods is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 1,750 in BBB Foods on August 28, 2024 and sell it today you would earn a total of 1,666 from holding BBB Foods or generate 95.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 57.34% |
| Values | Daily Returns |
Cars Inc vs. BBB Foods
Performance |
| Timeline |
| Cars Inc |
| BBB Foods |
Cars and BBB Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cars and BBB Foods
The main advantage of trading using opposite Cars and BBB Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cars position performs unexpectedly, BBB Foods 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 BBB Foods will offset losses from the drop in BBB Foods' long position.The idea behind Cars Inc and BBB Foods 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.| BBB Foods vs. Innovative Food Hldg | BBB Foods vs. Calavo Growers | BBB Foods vs. The Chefs Warehouse | BBB Foods vs. AMCON Distributing |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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