Correlation Between Best Buy and Build A

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

By analyzing existing cross correlation between Best Buy Co and Build A Bear Workshop, you can compare the effects of market volatilities on Best Buy and Build A 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 Best Buy with a short position of Build A. Check out your portfolio center. Please also check ongoing floating volatility patterns of Best Buy and Build A.

Diversification Opportunities for Best Buy and Build A

0.78

Correlation Coefficient

Best Buy  Build A

Poor diversification

The 3 months correlation between Best and Build is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Best Buy Co and Build A Bear Workshop in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Build A Bear and Best Buy 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 Best Buy Co are associated (or correlated) with Build A. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Build A Bear has no effect on the direction of Best Buy i.e., Best Buy and Build A go up and down completely randomly.

Pair Corralation between Best Buy and Build A

Considering the 90-day investment horizon Best Buy Co is expected to under-perform the Build A. In addition to that, Best Buy is 1.08 times more volatile than Build A Bear Workshop. It trades about -0.22 of its total potential returns per unit of risk. Build A Bear Workshop is currently generating about 0.04 per unit of volatility. If you would invest  2,898  in Build A Bear Workshop on January 25, 2024 and sell it today you would earn a total of  31.00  from holding Build A Bear Workshop or generate 1.07% return on investment over 90 days.

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

Best Buy Co  vs.  Build A Bear Workshop

Best Buy

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Best Buy Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental drivers, Best Buy is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Build A Bear

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Build A Bear Workshop are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental drivers, Build A showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Best Buy and Build A

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

The idea behind Best Buy Co and Build A Bear Workshop 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.