Correlation Between BCN and THC

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

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

Diversification Opportunities for BCN and THC

0.04

Correlation Coefficient

BCN  THC

Significant diversification

The 3 months correlation between BCN and THC is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding BCN and THC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on THC and BCN 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 BCN are associated (or correlated) with THC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of THC has no effect on the direction of BCN i.e., BCN and THC go up and down completely randomly.

Pair Corralation between BCN and THC

Assuming the 90 days trading horizon BCN is expected to generate 15.08 times more return on investment than THC. However, BCN is 15.08 times more volatile than THC. It trades about 0.34 of its potential returns per unit of risk. THC is currently generating about 0.02 per unit of risk. If you would invest  0.03  in BCN on January 28, 2024 and sell it today you would lose  0.00  from holding BCN or give up 8.57% of portfolio value over 90 days.

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

BCN  vs.  THC

BCN

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in BCN are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, BCN exhibited solid returns over the last few months and may actually be approaching a breakup point.

THC

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in THC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, THC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BCN and THC

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

The idea behind BCN and THC 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.