Correlation Between Build A and Best Buy
Can any of the company-specific risk be diversified away by investing in both Build A and Best Buy 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 Build A and Best Buy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Build A Bear Workshop and Best Buy Co, you can compare the effects of market volatilities on Build A and Best Buy 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 Build A with a short position of Best Buy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Build A and Best Buy.
Diversification Opportunities for Build A and Best Buy
Poor diversification
The 3 months correlation between Build and Best is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Build A Bear Workshop and Best Buy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Best Buy and Build A 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 Build A Bear Workshop are associated (or correlated) with Best Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Best Buy has no effect on the direction of Build A i.e., Build A and Best Buy go up and down completely randomly.
Pair Corralation between Build A and Best Buy
Considering the 90-day investment horizon Build A Bear Workshop is expected to generate 0.93 times more return on investment than Best Buy. However, Build A Bear Workshop is 1.08 times less risky than Best Buy. It trades about 0.04 of its potential returns per unit of risk. Best Buy Co is currently generating about -0.22 per unit of risk. If you would invest 2,943 in Build A Bear Workshop on January 26, 2024 and sell it today you would earn a total of 33.00 from holding Build A Bear Workshop or generate 1.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Build A Bear Workshop vs. Best Buy Co
Performance |
| Timeline |
| Build A Bear |
| Best Buy |
Build A and Best Buy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Build A and Best Buy
The main advantage of trading using opposite Build A and Best Buy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Build A position performs unexpectedly, Best Buy 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 Best Buy will offset losses from the drop in Best Buy's long position.The idea behind Build A Bear Workshop and Best Buy Co 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 CEOs Directory module to screen CEOs from public companies around the world.
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