Correlation Between Brand and ATT
Can any of the company-specific risk be diversified away by investing in both Brand and ATT 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 Brand and ATT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Brand Group and ATT Inc, you can compare the effects of market volatilities on Brand and ATT 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 Brand with a short position of ATT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brand and ATT.
Diversification Opportunities for Brand and ATT
Very weak diversification
The 3 months correlation between Brand and ATT is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Brand Group and ATT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ATT Inc and Brand 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 Brand Group are associated (or correlated) with ATT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ATT Inc has no effect on the direction of Brand i.e., Brand and ATT go up and down completely randomly.
Pair Corralation between Brand and ATT
Assuming the 90 days trading horizon Brand Group is expected to under-perform the ATT. In addition to that, Brand is 2.62 times more volatile than ATT Inc. It trades about -0.53 of its total potential returns per unit of risk. ATT Inc is currently generating about -0.02 per unit of volatility. If you would invest 1,690 in ATT Inc on January 26, 2024 and sell it today you would lose (9.00) from holding ATT Inc or give up 0.53% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 76.19% |
| Values | Daily Returns |
Brand Group vs. ATT Inc
Performance |
| Timeline |
| Brand Group |
| ATT Inc |
Brand and ATT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Brand and ATT
The main advantage of trading using opposite Brand and ATT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brand position performs unexpectedly, ATT 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 ATT will offset losses from the drop in ATT's long position.The idea behind Brand Group and ATT 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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