Correlation Between Boston Omaha and Encore Wire

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

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

Diversification Opportunities for Boston Omaha and Encore Wire

0.02

Correlation Coefficient

Boston Omaha  Encore Wire

Significant diversification

The 3 months correlation between Boston and Encore is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Boston Omaha Corp and Encore Wire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encore Wire and Boston Omaha 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 Boston Omaha Corp are associated (or correlated) with Encore Wire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encore Wire has no effect on the direction of Boston Omaha i.e., Boston Omaha and Encore Wire go up and down completely randomly.

Pair Corralation between Boston Omaha and Encore Wire

Considering the 90-day investment horizon Boston Omaha Corp is expected to under-perform the Encore Wire. But the stock apears to be less risky and, when comparing its historical volatility, Boston Omaha Corp is 1.77 times less risky than Encore Wire. The stock trades about -0.17 of its potential returns per unit of risk. The Encore Wire is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  23,733  in Encore Wire on January 20, 2024 and sell it today you would earn a total of  4,967  from holding Encore Wire or generate 20.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Boston Omaha Corp  vs.  Encore Wire

Boston Omaha Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Encore Wire

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Encore Wire are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Encore Wire exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Boston Omaha and Encore Wire

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

The idea behind Boston Omaha Corp and Encore Wire 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.