Correlation Between Alkali Metals and BF Utilities

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

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

Diversification Opportunities for Alkali Metals and BF Utilities

0.94

Correlation Coefficient

Alkali Metals  BF Utilities

Almost no diversification

The 3 months correlation between Alkali and BFUTILITIE is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Alkali Metals Limited and BF Utilities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BF Utilities Limited and Alkali Metals 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 Alkali Metals Limited are associated (or correlated) with BF Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BF Utilities Limited has no effect on the direction of Alkali Metals i.e., Alkali Metals and BF Utilities go up and down completely randomly.

Pair Corralation between Alkali Metals and BF Utilities

Assuming the 90 days trading horizon Alkali Metals Limited is expected to under-perform the BF Utilities. But the stock apears to be less risky and, when comparing its historical volatility, Alkali Metals Limited is 1.47 times less risky than BF Utilities. The stock trades about -0.16 of its potential returns per unit of risk. The BF Utilities Limited is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  96,385  in BF Utilities Limited on December 29, 2024 and sell it today you would lose (21,220) from holding BF Utilities Limited or give up 22.02% of portfolio value over 90 days.

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

Alkali Metals Limited  vs.  BF Utilities Limited

Alkali Metals Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alkali Metals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

BF Utilities Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days BF Utilities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Alkali Metals and BF Utilities

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

The idea behind Alkali Metals Limited and BF Utilities 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.