Correlation Between Barnwell Industries and ERHC Energy

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

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

Diversification Opportunities for Barnwell Industries and ERHC Energy

-0.75

Correlation Coefficient

Barnwell Industries  ERHC Energy

Pay attention - limited upside

The 3 months correlation between Barnwell and ERHC is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Barnwell Industries and ERHC Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ERHC Energy and Barnwell Industries 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 Barnwell Industries are associated (or correlated) with ERHC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ERHC Energy has no effect on the direction of Barnwell Industries i.e., Barnwell Industries and ERHC Energy go up and down completely randomly.

Pair Corralation between Barnwell Industries and ERHC Energy

Considering the 90-day investment horizon Barnwell Industries is expected to under-perform the ERHC Energy. But the stock apears to be less risky and, when comparing its historical volatility, Barnwell Industries is 44.29 times less risky than ERHC Energy. The stock trades about -0.14 of its potential returns per unit of risk. The ERHC Energy is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  0.06  in ERHC Energy on September 12, 2024 and sell it today you would earn a total of  0.17  from holding ERHC Energy or generate 283.33% return on investment over 90 days.

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

Barnwell Industries  vs.  ERHC Energy

Barnwell Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Barnwell Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

ERHC Energy

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ERHC Energy are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical indicators, ERHC Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Barnwell Industries and ERHC Energy

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

The idea behind Barnwell Industries and ERHC 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.

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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.