Correlation Between Bri Chem and Erdene Resource

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

By analyzing existing cross correlation between Bri Chem Corp and Erdene Resource Development, you can compare the effects of market volatilities on Bri Chem and Erdene Resource 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 Bri Chem with a short position of Erdene Resource. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bri Chem and Erdene Resource.

Diversification Opportunities for Bri Chem and Erdene Resource

-0.5

Correlation Coefficient

Bri Chem  Erdene Resource

Very good diversification

The 3 months correlation between Bri and Erdene is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Bri Chem Corp and Erdene Resource Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erdene Resource Deve and Bri Chem 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 Bri Chem Corp are associated (or correlated) with Erdene Resource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erdene Resource Deve has no effect on the direction of Bri Chem i.e., Bri Chem and Erdene Resource go up and down completely randomly.

Pair Corralation between Bri Chem and Erdene Resource

Assuming the 90 days trading horizon Bri Chem is expected to generate 13.22 times less return on investment than Erdene Resource. In addition to that, Bri Chem is 1.39 times more volatile than Erdene Resource Development. It trades about 0.01 of its total potential returns per unit of risk. Erdene Resource Development is currently generating about 0.2 per unit of volatility. If you would invest  55.00  in Erdene Resource Development on December 28, 2024 and sell it today you would earn a total of  24.00  from holding Erdene Resource Development or generate 43.64% return on investment over 90 days.

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

Bri Chem Corp  vs.  Erdene Resource Development

Bri Chem Corp

Risk-Adjusted Performance

Very Weak

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

Erdene Resource Deve

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Erdene Resource Development are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal fundamental indicators, Erdene Resource displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bri Chem and Erdene Resource

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

The idea behind Bri Chem Corp and Erdene Resource Development 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.