Correlation Between BRP and Dana
Can any of the company-specific risk be diversified away by investing in both BRP and Dana 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 BRP and Dana into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BRP Inc and Dana Inc, you can compare the effects of market volatilities on BRP and Dana 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 BRP with a short position of Dana. Check out your portfolio center. Please also check ongoing floating volatility patterns of BRP and Dana.
Diversification Opportunities for BRP and Dana
Poor diversification
The 3 months correlation between BRP and Dana is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding BRP Inc and Dana Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dana Inc and BRP 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 BRP Inc are associated (or correlated) with Dana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dana Inc has no effect on the direction of BRP i.e., BRP and Dana go up and down completely randomly.
Pair Corralation between BRP and Dana
Given the investment horizon of 90 days BRP Inc is expected to generate 0.43 times more return on investment than Dana. However, BRP Inc is 2.31 times less risky than Dana. It trades about -0.09 of its potential returns per unit of risk. Dana Inc is currently generating about -0.04 per unit of risk. If you would invest 5,171 in BRP Inc on August 29, 2024 and sell it today you would lose (276.50) from holding BRP Inc or give up 5.35% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BRP Inc vs. Dana Inc
Performance |
| Timeline |
| BRP Inc |
| Dana Inc |
BRP and Dana Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BRP and Dana
The main advantage of trading using opposite BRP and Dana positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BRP position performs unexpectedly, Dana 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 Dana will offset losses from the drop in Dana's long position.The idea behind BRP Inc and Dana Inc 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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