Correlation Between Destination and Biglari Holdings

Can any of the company-specific risk be diversified away by investing in both Destination and Biglari Holdings 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 Destination and Biglari Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Destination XL Group and Biglari Holdings, you can compare the effects of market volatilities on Destination and Biglari Holdings 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 Destination with a short position of Biglari Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Destination and Biglari Holdings.

Diversification Opportunities for Destination and Biglari Holdings

-0.67

Correlation Coefficient

Destination  Biglari Holdings

Excellent diversification

The 3 months correlation between Destination and Biglari is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Destination XL Group and Biglari Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biglari Holdings and Destination 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 Destination XL Group are associated (or correlated) with Biglari Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biglari Holdings has no effect on the direction of Destination i.e., Destination and Biglari Holdings go up and down completely randomly.

Pair Corralation between Destination and Biglari Holdings

Given the investment horizon of 90 days Destination XL Group is expected to under-perform the Biglari Holdings. In addition to that, Destination is 1.02 times more volatile than Biglari Holdings. It trades about -0.13 of its total potential returns per unit of risk. Biglari Holdings is currently generating about 0.09 per unit of volatility. If you would invest  18,886  in Biglari Holdings on February 6, 2024 and sell it today you would earn a total of  1,508  from holding Biglari Holdings or generate 7.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Destination XL Group  vs.  Biglari Holdings

Destination XL Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Destination XL Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Biglari Holdings

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Biglari Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, Biglari Holdings demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Destination and Biglari Holdings

The main advantage of trading using opposite Destination and Biglari Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Destination position performs unexpectedly, Biglari Holdings 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 Biglari Holdings will offset losses from the drop in Biglari Holdings' long position.

The idea behind Destination XL Group and Biglari Holdings 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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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.