Correlation Between Murphy USA and Build A

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

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

Diversification Opportunities for Murphy USA and Build A

0.68

Correlation Coefficient

Murphy USA  Build A

Poor diversification

The 3 months correlation between Murphy and Build is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Murphy USA 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 Murphy USA 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 Murphy USA 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 Murphy USA i.e., Murphy USA and Build A go up and down completely randomly.

Pair Corralation between Murphy USA and Build A

Given the investment horizon of 90 days Murphy USA is expected to generate 1.21 times less return on investment than Build A. But when comparing it to its historical volatility, Murphy USA is 1.57 times less risky than Build A. It trades about 0.09 of its potential returns per unit of risk. Build A Bear Workshop is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,537  in Build A Bear Workshop on January 30, 2024 and sell it today you would earn a total of  442.00  from holding Build A Bear Workshop or generate 17.42% return on investment over 90 days.

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

Murphy USA  vs.  Build A Bear Workshop

Murphy USA

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Murphy USA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Murphy USA sustained solid returns over the last few months and may actually be approaching a breakup point.

Build A Bear

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Build A Bear Workshop are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain fundamental drivers, Build A showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Murphy USA and Build A

The main advantage of trading using opposite Murphy USA and Build A positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Murphy USA 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 Murphy USA 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.