Correlation Between Basic Materials and Bridge Builder
Can any of the company-specific risk be diversified away by investing in both Basic Materials and Bridge Builder 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 Basic Materials and Bridge Builder into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials Fund and Bridge Builder Smallmid, you can compare the effects of market volatilities on Basic Materials and Bridge Builder 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 Basic Materials with a short position of Bridge Builder. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Bridge Builder.
Diversification Opportunities for Basic Materials and Bridge Builder
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Basic and Bridge is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Fund and Bridge Builder Smallmid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridge Builder Smallmid and Basic Materials 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 Basic Materials Fund are associated (or correlated) with Bridge Builder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridge Builder Smallmid has no effect on the direction of Basic Materials i.e., Basic Materials and Bridge Builder go up and down completely randomly.
Pair Corralation between Basic Materials and Bridge Builder
Assuming the 90 days horizon Basic Materials is expected to generate 2.34 times less return on investment than Bridge Builder. In addition to that, Basic Materials is 1.03 times more volatile than Bridge Builder Smallmid. It trades about 0.03 of its total potential returns per unit of risk. Bridge Builder Smallmid is currently generating about 0.07 per unit of volatility. If you would invest 1,209 in Bridge Builder Smallmid on August 29, 2024 and sell it today you would earn a total of 526.00 from holding Bridge Builder Smallmid or generate 43.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Basic Materials Fund vs. Bridge Builder Smallmid
Performance |
| Timeline |
| Basic Materials |
| Bridge Builder Smallmid |
Basic Materials and Bridge Builder Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Basic Materials and Bridge Builder
The main advantage of trading using opposite Basic Materials and Bridge Builder positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, Bridge Builder 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 Bridge Builder will offset losses from the drop in Bridge Builder's long position.| Basic Materials vs. Basic Materials Fund | Basic Materials vs. Basic Materials Fund | Basic Materials vs. Basic Materials Fund | Basic Materials vs. Energy Services Fund |
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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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