Correlation Between Bengal Energy and High Arctic

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

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

Diversification Opportunities for Bengal Energy and High Arctic

-0.1

Correlation Coefficient

Bengal Energy  High Arctic

Good diversification

The 3 months correlation between Bengal and High is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Bengal Energy and High Arctic Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Arctic Energy and Bengal 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 Bengal Energy are associated (or correlated) with High Arctic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Arctic Energy has no effect on the direction of Bengal Energy i.e., Bengal Energy and High Arctic go up and down completely randomly.

Pair Corralation between Bengal Energy and High Arctic

Assuming the 90 days trading horizon Bengal Energy is expected to generate 29.66 times more return on investment than High Arctic. However, Bengal Energy is 29.66 times more volatile than High Arctic Energy. It trades about 0.2 of its potential returns per unit of risk. High Arctic Energy is currently generating about 0.01 per unit of risk. If you would invest  1.00  in Bengal Energy on October 11, 2024 and sell it today you would earn a total of  0.50  from holding Bengal Energy or generate 50.0% return on investment over 90 days.

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

Bengal Energy  vs.  High Arctic Energy

Bengal Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bengal Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Bengal Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

High Arctic Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days High Arctic Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, High Arctic is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Bengal Energy and High Arctic

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

The idea behind Bengal Energy and High Arctic Energy 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 the Equity Valuation module to check real value of public entities based on technical and fundamental data.