Correlation Between Carnival and Baudax BioInc

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

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

Diversification Opportunities for Carnival and Baudax BioInc

0.21

Correlation Coefficient

Carnival  Baudax BioInc

Modest diversification

The 3 months correlation between Carnival and Baudax is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Carnival and Baudax BioInc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baudax BioInc and Carnival 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 Carnival are associated (or correlated) with Baudax BioInc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baudax BioInc has no effect on the direction of Carnival i.e., Carnival and Baudax BioInc go up and down completely randomly.

Pair Corralation between Carnival and Baudax BioInc

Considering the 90-day investment horizon Carnival is expected to generate 0.18 times more return on investment than Baudax BioInc. However, Carnival is 5.68 times less risky than Baudax BioInc. It trades about 0.08 of its potential returns per unit of risk. Baudax BioInc is currently generating about -0.06 per unit of risk. If you would invest  896.00  in Carnival on January 20, 2024 and sell it today you would earn a total of  522.00  from holding Carnival or generate 58.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Carnival  vs.  Baudax BioInc

Carnival

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carnival has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in May 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Baudax BioInc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baudax BioInc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Carnival and Baudax BioInc

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

The idea behind Carnival and Baudax BioInc 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.