Correlation Between Best Buy and EBay
Can any of the company-specific risk be diversified away by investing in both Best Buy and EBay 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 Best Buy and EBay into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Best Buy Co and eBay Inc, you can compare the effects of market volatilities on Best Buy and EBay 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 Best Buy with a short position of EBay. Check out your portfolio center. Please also check ongoing floating volatility patterns of Best Buy and EBay.
Diversification Opportunities for Best Buy and EBay
Very poor diversification
The 3 months correlation between Best and EBay is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Best Buy Co and eBay Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on eBay Inc and Best Buy 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 Best Buy Co are associated (or correlated) with EBay. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of eBay Inc has no effect on the direction of Best Buy i.e., Best Buy and EBay go up and down completely randomly.
Pair Corralation between Best Buy and EBay
Considering the 90-day investment horizon Best Buy is expected to generate 19.0 times less return on investment than EBay. In addition to that, Best Buy is 1.08 times more volatile than eBay Inc. It trades about 0.0 of its total potential returns per unit of risk. eBay Inc is currently generating about 0.01 per unit of volatility. If you would invest 5,091 in eBay Inc on January 20, 2024 and sell it today you would lose (96.00) from holding eBay Inc or give up 1.89% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
Best Buy Co vs. eBay Inc
Performance |
| Timeline |
| Best Buy |
| eBay Inc |
Best Buy and EBay Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Best Buy and EBay
The main advantage of trading using opposite Best Buy and EBay positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Best Buy position performs unexpectedly, EBay 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 EBay will offset losses from the drop in EBay's long position.The idea behind Best Buy Co and eBay 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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