Correlation Between API3 and BNT

Can any of the company-specific risk be diversified away by investing in both API3 and BNT 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 API3 and BNT into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between API3 and BNT, you can compare the effects of market volatilities on API3 and BNT 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 API3 with a short position of BNT. Check out your portfolio center. Please also check ongoing floating volatility patterns of API3 and BNT.

Diversification Opportunities for API3 and BNT

0.65

Correlation Coefficient

API3  BNT

Poor diversification

The 3 months correlation between API3 and BNT is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding API3 and BNT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BNT and API3 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 API3 are associated (or correlated) with BNT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BNT has no effect on the direction of API3 i.e., API3 and BNT go up and down completely randomly.

Pair Corralation between API3 and BNT

Assuming the 90 days trading horizon API3 is expected to under-perform the BNT. In addition to that, API3 is 1.27 times more volatile than BNT. It trades about -0.33 of its total potential returns per unit of risk. BNT is currently generating about -0.13 per unit of volatility. If you would invest  82.00  in BNT on January 20, 2024 and sell it today you would lose (12.00) from holding BNT or give up 14.63% of portfolio value over 90 days.

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

API3  vs.  BNT

API3

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in API3 are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, API3 exhibited solid returns over the last few months and may actually be approaching a breakup point.

BNT

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BNT are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, BNT may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with API3 and BNT

The main advantage of trading using opposite API3 and BNT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if API3 position performs unexpectedly, BNT 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 BNT will offset losses from the drop in BNT's long position.

The idea behind API3 and BNT 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.