Correlation Between Altria and Bed Bath

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

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

Diversification Opportunities for Altria and Bed Bath

-0.08

Correlation Coefficient

Altria  Bed Bath

Good diversification

The 3 months correlation between Altria and Bed is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Altria Group and Bed Bath Beyond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bed Bath Beyond and Altria 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 Altria Group are associated (or correlated) with Bed Bath. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bed Bath Beyond has no effect on the direction of Altria i.e., Altria and Bed Bath go up and down completely randomly.

Pair Corralation between Altria and Bed Bath

Allowing for the 90-day total investment horizon Altria Group is expected to generate 0.09 times more return on investment than Bed Bath. However, Altria Group is 10.71 times less risky than Bed Bath. It trades about 0.0 of its potential returns per unit of risk. Bed Bath Beyond is currently generating about -0.02 per unit of risk. If you would invest  4,657  in Altria Group on January 27, 2024 and sell it today you would lose (303.00) from holding Altria Group or give up 6.51% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	58.7%
Values	Daily Returns

Altria Group  vs.  Bed Bath Beyond

Altria Group

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Altria Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Altria may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Bed Bath Beyond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bed Bath Beyond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, Bed Bath is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Altria and Bed Bath

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

The idea behind Altria Group and Bed Bath Beyond 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.