Correlation Between Berkshire Hathaway and Albemarle

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

Diversification Opportunities for Berkshire Hathaway and Albemarle

0.73
  Correlation Coefficient

Poor diversification

The 3 months correlation between Berkshire and Albemarle is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway and Albemarle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Albemarle and Berkshire Hathaway 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 Berkshire Hathaway are associated (or correlated) with Albemarle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Albemarle has no effect on the direction of Berkshire Hathaway i.e., Berkshire Hathaway and Albemarle go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Albemarle

Assuming the 90 days trading horizon Berkshire Hathaway is expected to generate 4.63 times less return on investment than Albemarle. But when comparing it to its historical volatility, Berkshire Hathaway is 1.91 times less risky than Albemarle. It trades about 0.06 of its potential returns per unit of risk. Albemarle is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  69,378  in Albemarle on September 4, 2022 and sell it today you would earn a total of  83,390  from holding Albemarle or generate 120.2% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy45.6%
ValuesDaily Returns

Berkshire Hathaway  vs.  Albemarle

 Performance (%) 
       Timeline  
Berkshire Hathaway 
Berkshire Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Berkshire Hathaway sustained solid returns over the last few months and may actually be approaching a breakup point.

Berkshire Price Channel

Albemarle 
Albemarle Performance
0 of 100
Over the last 90 days Albemarle has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Albemarle is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Berkshire Hathaway and Albemarle Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Berkshire Hathaway and Albemarle

The main advantage of trading using opposite Berkshire Hathaway and Albemarle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Berkshire Hathaway position performs unexpectedly, Albemarle 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 Albemarle will offset losses from the drop in Albemarle's long position.
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The idea behind Berkshire Hathaway and Albemarle 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.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Albemarle as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Albemarle's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Albemarle's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Albemarle.
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.

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