Correlation Between Bengal Energy and Southern Cross

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

By analyzing existing cross correlation between Bengal Energy and Southern Cross Media, you can compare the effects of market volatilities on Bengal Energy and Southern Cross 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 Southern Cross. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bengal Energy and Southern Cross.

Diversification Opportunities for Bengal Energy and Southern Cross

0.3

Correlation Coefficient

Bengal Energy  Southern Cross

Weak diversification

The 3 months correlation between Bengal and Southern is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Bengal Energy and Southern Cross Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Cross Media 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 Southern Cross. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Cross Media has no effect on the direction of Bengal Energy i.e., Bengal Energy and Southern Cross go up and down completely randomly.

Pair Corralation between Bengal Energy and Southern Cross

Assuming the 90 days horizon Bengal Energy is expected to generate 8.67 times less return on investment than Southern Cross. In addition to that, Bengal Energy is 1.32 times more volatile than Southern Cross Media. It trades about 0.04 of its total potential returns per unit of risk. Southern Cross Media is currently generating about 0.47 per unit of volatility. If you would invest  6.25  in Southern Cross Media on October 22, 2024 and sell it today you would earn a total of  4.75  from holding Southern Cross Media or generate 76.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

Bengal Energy  vs.  Southern Cross Media

Bengal Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bengal Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Bengal Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Southern Cross Media

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Cross Media are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Southern Cross reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bengal Energy and Southern Cross

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

The idea behind Bengal Energy and Southern Cross Media 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.