Correlation Between Bonterra Energy and Gem Diamonds

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

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

Diversification Opportunities for Bonterra Energy and Gem Diamonds

0.68

Correlation Coefficient

Bonterra Energy  Gem Diamonds

Poor diversification

The 3 months correlation between Bonterra and Gem is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Bonterra Energy Corp and Gem Diamonds Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gem Diamonds Limited and Bonterra 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 Bonterra Energy Corp are associated (or correlated) with Gem Diamonds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gem Diamonds Limited has no effect on the direction of Bonterra Energy i.e., Bonterra Energy and Gem Diamonds go up and down completely randomly.

Pair Corralation between Bonterra Energy and Gem Diamonds

Assuming the 90 days horizon Bonterra Energy Corp is expected to generate 0.95 times more return on investment than Gem Diamonds. However, Bonterra Energy Corp is 1.05 times less risky than Gem Diamonds. It trades about -0.06 of its potential returns per unit of risk. Gem Diamonds Limited is currently generating about -0.17 per unit of risk. If you would invest  271.00  in Bonterra Energy Corp on September 29, 2024 and sell it today you would lose (32.00) from holding Bonterra Energy Corp or give up 11.81% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Bonterra Energy Corp  vs.  Gem Diamonds Limited

Bonterra Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bonterra Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Gem Diamonds Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gem Diamonds 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 primary 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 Bonterra Energy and Gem Diamonds

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

The idea behind Bonterra Energy Corp and Gem Diamonds 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.