Correlation Between SC and Bifrost

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

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

Diversification Opportunities for SC and Bifrost

0.83

Correlation Coefficient

SC  Bifrost

Very poor diversification

The 3 months correlation between SC and Bifrost is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding SC and Bifrost in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bifrost and SC 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 SC are associated (or correlated) with Bifrost. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bifrost has no effect on the direction of SC i.e., SC and Bifrost go up and down completely randomly.

Pair Corralation between SC and Bifrost

Assuming the 90 days horizon SC is expected to generate 1.35 times less return on investment than Bifrost. In addition to that, SC is 1.05 times more volatile than Bifrost. It trades about 0.04 of its total potential returns per unit of risk. Bifrost is currently generating about 0.05 per unit of volatility. If you would invest  1.55  in Bifrost on February 11, 2025 and sell it today you would earn a total of  1.80  from holding Bifrost or generate 116.13% return on investment over 90 days.

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

SC  vs.  Bifrost

SC

Risk-Adjusted Performance

Very Weak

Over the last 90 days SC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, SC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Bifrost

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bifrost has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Bifrost is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SC and Bifrost

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

The idea behind SC and Bifrost 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.