Correlation Between Buru Energy and ADX Energy

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

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

Diversification Opportunities for Buru Energy and ADX Energy

-0.27

Correlation Coefficient

Buru Energy  ADX Energy

Very good diversification

The 3 months correlation between Buru and ADX is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Buru Energy Limited and ADX Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADX Energy and Buru 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 Buru Energy Limited are associated (or correlated) with ADX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADX Energy has no effect on the direction of Buru Energy i.e., Buru Energy and ADX Energy go up and down completely randomly.

Pair Corralation between Buru Energy and ADX Energy

Assuming the 90 days horizon Buru Energy Limited is not expected to generate positive returns. However, Buru Energy Limited is 1.83 times less risky than ADX Energy. It waists most of its returns potential to compensate for thr risk taken. ADX Energy is generating about 0.12 per unit of risk. If you would invest  1.20  in ADX Energy on December 24, 2024 and sell it today you would earn a total of  0.70  from holding ADX Energy or generate 58.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Buru Energy Limited  vs.  ADX Energy

Buru Energy Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Buru Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Buru Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

ADX Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ADX Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, ADX Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Buru Energy and ADX Energy

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

The idea behind Buru Energy Limited and ADX 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.