Correlation Between Blue Bird and NikolaCorp

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

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

Diversification Opportunities for Blue Bird and NikolaCorp

0.48

Correlation Coefficient

Blue Bird  NikolaCorp

Very weak diversification

The 3 months correlation between Blue and NikolaCorp is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Blue Bird Corp and NikolaCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NikolaCorp and Blue Bird 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 Blue Bird Corp are associated (or correlated) with NikolaCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NikolaCorp has no effect on the direction of Blue Bird i.e., Blue Bird and NikolaCorp go up and down completely randomly.

Pair Corralation between Blue Bird and NikolaCorp

Given the investment horizon of 90 days Blue Bird Corp is expected to generate 0.37 times more return on investment than NikolaCorp. However, Blue Bird Corp is 2.67 times less risky than NikolaCorp. It trades about 0.06 of its potential returns per unit of risk. NikolaCorp is currently generating about -0.01 per unit of risk. If you would invest  3,228  in Blue Bird Corp on January 27, 2024 and sell it today you would earn a total of  169.00  from holding Blue Bird Corp or generate 5.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Blue Bird Corp  vs.  NikolaCorp

Blue Bird Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Bird Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal fundamental drivers, Blue Bird exhibited solid returns over the last few months and may actually be approaching a breakup point.

NikolaCorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NikolaCorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's essential indicators remain somewhat 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 Blue Bird and NikolaCorp

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

The idea behind Blue Bird Corp and NikolaCorp 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.