Correlation Between Charter Communications and Bath Body
Can any of the company-specific risk be diversified away by investing in both Charter Communications and Bath Body 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 Charter Communications and Bath Body into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Charter Communications and Bath Body Works, you can compare the effects of market volatilities on Charter Communications and Bath Body 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 Charter Communications with a short position of Bath Body. Check out your portfolio center. Please also check ongoing floating volatility patterns of Charter Communications and Bath Body.
Diversification Opportunities for Charter Communications and Bath Body
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Charter and Bath is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Charter Communications and Bath Body Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bath Body Works and Charter Communications 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 Charter Communications are associated (or correlated) with Bath Body. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bath Body Works has no effect on the direction of Charter Communications i.e., Charter Communications and Bath Body go up and down completely randomly.
Pair Corralation between Charter Communications and Bath Body
Assuming the 90 days trading horizon Charter Communications is expected to generate 1.05 times less return on investment than Bath Body. But when comparing it to its historical volatility, Charter Communications is 1.52 times less risky than Bath Body. It trades about 0.03 of its potential returns per unit of risk. Bath Body Works is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 5,802 in Bath Body Works on September 12, 2024 and sell it today you would earn a total of 97.00 from holding Bath Body Works or generate 1.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 43.06% |
| Values | Daily Returns |
Charter Communications vs. Bath Body Works
Performance |
| Timeline |
| Charter Communications |
| Bath Body Works |
Charter Communications and Bath Body Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Charter Communications and Bath Body
The main advantage of trading using opposite Charter Communications and Bath Body positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charter Communications position performs unexpectedly, Bath Body 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 Bath Body will offset losses from the drop in Bath Body's long position.The idea behind Charter Communications and Bath Body Works 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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