Correlation Between South West and Blue Bird

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

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

Diversification Opportunities for South West and Blue Bird

-0.75

Correlation Coefficient

South West  Blue Bird

Pay attention - limited upside

The 3 months correlation between South and Blue is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding South West Pinnacle and Blue Bird Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Bird Corp and South West 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 South West Pinnacle are associated (or correlated) with Blue Bird. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Bird Corp has no effect on the direction of South West i.e., South West and Blue Bird go up and down completely randomly.

Pair Corralation between South West and Blue Bird

Assuming the 90 days trading horizon South West is expected to generate 4.97 times less return on investment than Blue Bird. But when comparing it to its historical volatility, South West Pinnacle is 1.16 times less risky than Blue Bird. It trades about 0.02 of its potential returns per unit of risk. Blue Bird Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,038  in Blue Bird Corp on February 7, 2024 and sell it today you would earn a total of  1,502  from holding Blue Bird Corp or generate 73.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.77%
Values	Daily Returns

South West Pinnacle  vs.  Blue Bird Corp

South West Pinnacle

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days South West Pinnacle has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Blue Bird Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Bird Corp are ranked lower than 8 (%) 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.

Pair Trading with South West and Blue Bird

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

The idea behind South West Pinnacle and Blue Bird Corp 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.