Correlation Between Numeraire and BLZ
Can any of the company-specific risk be diversified away by investing in both Numeraire and BLZ 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 Numeraire and BLZ into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Numeraire and BLZ, you can compare the effects of market volatilities on Numeraire and BLZ 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 Numeraire with a short position of BLZ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Numeraire and BLZ.
Diversification Opportunities for Numeraire and BLZ
Very weak diversification
The 3 months correlation between Numeraire and BLZ is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Numeraire and BLZ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BLZ and Numeraire 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 Numeraire are associated (or correlated) with BLZ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BLZ has no effect on the direction of Numeraire i.e., Numeraire and BLZ go up and down completely randomly.
Pair Corralation between Numeraire and BLZ
Assuming the 90 days trading horizon Numeraire is expected to generate 1.22 times less return on investment than BLZ. But when comparing it to its historical volatility, Numeraire is 1.31 times less risky than BLZ. It trades about 0.23 of its potential returns per unit of risk. BLZ is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 11.00 in BLZ on August 28, 2024 and sell it today you would earn a total of 3.00 from holding BLZ or generate 27.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Numeraire vs. BLZ
Performance |
| Timeline |
| Numeraire |
| BLZ |
Numeraire and BLZ Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Numeraire and BLZ
The main advantage of trading using opposite Numeraire and BLZ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Numeraire position performs unexpectedly, BLZ 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 BLZ will offset losses from the drop in BLZ's long position.The idea behind Numeraire and BLZ 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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