Correlation Between BT Brands and Despegar Corp

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

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

Diversification Opportunities for BT Brands and Despegar Corp

-0.54

Correlation Coefficient

BT Brands  Despegar Corp

Excellent diversification

The 3 months correlation between BTBDW and Despegar is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding BT Brands Warrant and Despegar Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Despegar Corp and BT Brands 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 BT Brands Warrant are associated (or correlated) with Despegar Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Despegar Corp has no effect on the direction of BT Brands i.e., BT Brands and Despegar Corp go up and down completely randomly.

Pair Corralation between BT Brands and Despegar Corp

Assuming the 90 days horizon BT Brands Warrant is expected to generate 5.46 times more return on investment than Despegar Corp. However, BT Brands is 5.46 times more volatile than Despegar Corp. It trades about 0.07 of its potential returns per unit of risk. Despegar Corp is currently generating about 0.2 per unit of risk. If you would invest  12.00  in BT Brands Warrant on March 8, 2024 and sell it today you would lose (2.00) from holding BT Brands Warrant or give up 16.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	59.68%
Values	Daily Returns

BT Brands Warrant  vs.  Despegar Corp

BT Brands Warrant

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days BT Brands Warrant has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly conflicting fundamental indicators, BT Brands showed solid returns over the last few months and may actually be approaching a breakup point.

Despegar Corp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Despegar Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Despegar Corp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BT Brands and Despegar Corp

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

The idea behind BT Brands Warrant and Despegar Corp 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.