Correlation Between Big Rock and Data Communications

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

By analyzing existing cross correlation between Big Rock Brewery and Data Communications Management, you can compare the effects of market volatilities on Big Rock and Data Communications 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 Big Rock with a short position of Data Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big Rock and Data Communications.

Diversification Opportunities for Big Rock and Data Communications

0.23

Correlation Coefficient

Big Rock  Data Communications

Modest diversification

The 3 months correlation between Big and Data is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Big Rock Brewery and Data Communications Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Data Communications and Big Rock 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 Big Rock Brewery are associated (or correlated) with Data Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Data Communications has no effect on the direction of Big Rock i.e., Big Rock and Data Communications go up and down completely randomly.

Pair Corralation between Big Rock and Data Communications

Assuming the 90 days horizon Big Rock is expected to generate 1.25 times less return on investment than Data Communications. In addition to that, Big Rock is 1.1 times more volatile than Data Communications Management. It trades about 0.01 of its total potential returns per unit of risk. Data Communications Management is currently generating about 0.01 per unit of volatility. If you would invest  174.00  in Data Communications Management on April 22, 2025 and sell it today you would lose (2.00) from holding Data Communications Management or give up 1.15% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Big Rock Brewery  vs.  Data Communications Management

Big Rock Brewery

Risk-Adjusted Performance

Very Weak

Over the last 90 days Big Rock Brewery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Big Rock is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Data Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Data Communications Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Data Communications is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Big Rock and Data Communications

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

The idea behind Big Rock Brewery and Data Communications Management 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.