Correlation Between ADX Energy and Buru Energy

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

By analyzing existing cross correlation between ADX Energy and Buru Energy Limited, you can compare the effects of market volatilities on ADX Energy and Buru Energy 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 ADX Energy with a short position of Buru Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of ADX Energy and Buru Energy.

Diversification Opportunities for ADX Energy and Buru Energy

0.41

Correlation Coefficient

ADX Energy  Buru Energy

Very weak diversification

The 3 months correlation between ADX and Buru is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding ADX Energy and Buru Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Buru Energy Limited and ADX Energy 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 ADX Energy are associated (or correlated) with Buru Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Buru Energy Limited has no effect on the direction of ADX Energy i.e., ADX Energy and Buru Energy go up and down completely randomly.

Pair Corralation between ADX Energy and Buru Energy

Assuming the 90 days horizon ADX Energy is expected to generate 1.89 times more return on investment than Buru Energy. However, ADX Energy is 1.89 times more volatile than Buru Energy Limited. It trades about 0.01 of its potential returns per unit of risk. Buru Energy Limited is currently generating about -0.12 per unit of risk. If you would invest  7.50  in ADX Energy on September 11, 2024 and sell it today you would lose (3.50) from holding ADX Energy or give up 46.67% of portfolio value over 90 days.

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

ADX Energy  vs.  Buru Energy Limited

ADX Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ADX Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak basic indicators, ADX Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Buru Energy Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Buru Energy Limited 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 technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with ADX Energy and Buru Energy

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

The idea behind ADX Energy and Buru Energy Limited 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.