Correlation Between Apple and Berkshire Hathaway

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

By analyzing existing cross correlation between Apple Inc and Berkshire Hathaway, you can compare the effects of market volatilities on Apple and Berkshire Hathaway 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 Apple with a short position of Berkshire Hathaway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Apple and Berkshire Hathaway.

Diversification Opportunities for Apple and Berkshire Hathaway

0.61

Correlation Coefficient

Apple  Berkshire Hathaway

Poor diversification

The 3 months correlation between Apple and Berkshire is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and Berkshire Hathaway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkshire Hathaway and Apple 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 Apple Inc are associated (or correlated) with Berkshire Hathaway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkshire Hathaway has no effect on the direction of Apple i.e., Apple and Berkshire Hathaway go up and down completely randomly.

Pair Corralation between Apple and Berkshire Hathaway

Assuming the 90 days trading horizon Apple is expected to generate 1.99 times less return on investment than Berkshire Hathaway. But when comparing it to its historical volatility, Apple Inc is 1.09 times less risky than Berkshire Hathaway. It trades about 0.06 of its potential returns per unit of risk. Berkshire Hathaway is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  40,665  in Berkshire Hathaway on August 19, 2024 and sell it today you would earn a total of  3,875  from holding Berkshire Hathaway or generate 9.53% return on investment over 90 days.

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

Apple Inc  vs.  Berkshire Hathaway

Apple Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Apple Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Apple is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Berkshire Hathaway

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Berkshire Hathaway may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Apple and Berkshire Hathaway

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

The idea behind Apple Inc and Berkshire Hathaway 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.