Correlation Between Bed Bath and Aarons Holdings

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Can any of the company-specific risk be diversified away by investing in both Bed Bath and Aarons Holdings 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 Bed Bath and Aarons Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bed Bath Beyond and Aarons Holdings, you can compare the effects of market volatilities on Bed Bath and Aarons Holdings 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 Bed Bath with a short position of Aarons Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bed Bath and Aarons Holdings.

Diversification Opportunities for Bed Bath and Aarons Holdings

0.69
  Correlation Coefficient

Poor diversification

The 3 months correlation between Bed Bath and Aarons is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Bed Bath Beyond and Aarons Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aarons Holdings and Bed Bath 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 Bed Bath Beyond are associated (or correlated) with Aarons Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aarons Holdings has no effect on the direction of Bed Bath i.e., Bed Bath and Aarons Holdings go up and down completely randomly.

Pair Corralation between Bed Bath and Aarons Holdings

Given the investment horizon of 90 days Bed Bath Beyond is expected to generate 2.54 times more return on investment than Aarons Holdings. However, Bed Bath is 2.54 times more volatile than Aarons Holdings. It trades about 0.06 of its potential returns per unit of risk. Aarons Holdings is currently generating about -0.12 per unit of risk. If you would invest  940.00  in Bed Bath Beyond on May 12, 2022 and sell it today you would earn a total of  111.00  from holding Bed Bath Beyond or generate 11.81% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Bed Bath Beyond  vs.  Aarons Holdings

 Performance (%) 
       Timeline  
Bed Bath Beyond 
Bed Bath Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Bed Bath Beyond are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting fundamental drivers, Bed Bath showed solid returns over the last few months and may actually be approaching a breakup point.

Bed Bath Price Channel

Aarons Holdings 
Aarons Performance
0 of 100
Over the last 90 days Aarons Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in September 2022. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Aarons Price Channel

Bed Bath and Aarons Holdings Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bed Bath and Aarons Holdings

The main advantage of trading using opposite Bed Bath and Aarons Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bed Bath position performs unexpectedly, Aarons Holdings 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 Aarons Holdings will offset losses from the drop in Aarons Holdings' long position.
The idea behind Bed Bath Beyond and Aarons Holdings 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.
Check out your portfolio center. 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 Probability Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.

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