Correlation Between Buru Energy and CGX Energy

Can any of the company-specific risk be diversified away by investing in both Buru Energy and CGX 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 CGX 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 CGX Energy, you can compare the effects of market volatilities on Buru Energy and CGX 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 CGX Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Buru Energy and CGX Energy.

Diversification Opportunities for Buru Energy and CGX Energy

0.57

Correlation Coefficient

Buru Energy  CGX Energy

Very weak diversification

The 3 months correlation between Buru and CGX is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Buru Energy Limited and CGX Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CGX 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 CGX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CGX Energy has no effect on the direction of Buru Energy i.e., Buru Energy and CGX Energy go up and down completely randomly.

Pair Corralation between Buru Energy and CGX Energy

Assuming the 90 days horizon Buru Energy Limited is expected to generate 2.2 times more return on investment than CGX Energy. However, Buru Energy is 2.2 times more volatile than CGX Energy. It trades about 0.02 of its potential returns per unit of risk. CGX Energy is currently generating about -0.17 per unit of risk. If you would invest  2.00  in Buru Energy Limited on October 11, 2024 and sell it today you would lose (0.23) from holding Buru Energy Limited or give up 11.5% of portfolio value over 90 days.

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

Buru Energy Limited  vs.  CGX Energy

Buru Energy Limited

Risk-Adjusted Performance

0 of 100

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 fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

CGX Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CGX Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Buru Energy and CGX Energy

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

The idea behind Buru Energy Limited and CGX 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.