Correlation Between International Biotechnology and Big Yellow
Can any of the company-specific risk be diversified away by investing in both International Biotechnology and Big Yellow 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 International Biotechnology and Big Yellow into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Biotechnology Trust and Big Yellow Group, you can compare the effects of market volatilities on International Biotechnology and Big Yellow 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 International Biotechnology with a short position of Big Yellow. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Biotechnology and Big Yellow.
Diversification Opportunities for International Biotechnology and Big Yellow
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between International and Big is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding International Biotechnology Tr and Big Yellow Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big Yellow Group and International Biotechnology 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 International Biotechnology Trust are associated (or correlated) with Big Yellow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big Yellow Group has no effect on the direction of International Biotechnology i.e., International Biotechnology and Big Yellow go up and down completely randomly.
Pair Corralation between International Biotechnology and Big Yellow
Assuming the 90 days trading horizon International Biotechnology Trust is expected to under-perform the Big Yellow. But the stock apears to be less risky and, when comparing its historical volatility, International Biotechnology Trust is 1.11 times less risky than Big Yellow. The stock trades about -0.16 of its potential returns per unit of risk. The Big Yellow Group is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest 96,800 in Big Yellow Group on November 29, 2024 and sell it today you would lose (2,300) from holding Big Yellow Group or give up 2.38% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Biotechnology Tr vs. Big Yellow Group
Performance |
| Timeline |
| International Biotechnology |
| Big Yellow Group |
International Biotechnology and Big Yellow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Biotechnology and Big Yellow
The main advantage of trading using opposite International Biotechnology and Big Yellow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Biotechnology position performs unexpectedly, Big Yellow 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 Big Yellow will offset losses from the drop in Big Yellow's long position.The idea behind International Biotechnology Trust and Big Yellow Group 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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