Correlation Between Bri Chem and Chatham Rock

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

Diversification Opportunities for Bri Chem and Chatham Rock

0.01

Correlation Coefficient

Bri Chem  Chatham Rock

Significant diversification

The 3 months correlation between Bri and Chatham is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Bri Chem Corp and Chatham Rock Phosphate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chatham Rock Phosphate 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 Chatham Rock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chatham Rock Phosphate has no effect on the direction of Bri Chem i.e., Bri Chem and Chatham Rock go up and down completely randomly.

Pair Corralation between Bri Chem and Chatham Rock

Assuming the 90 days trading horizon Bri Chem is expected to generate 19.2 times less return on investment than Chatham Rock. But when comparing it to its historical volatility, Bri Chem Corp is 2.69 times less risky than Chatham Rock. It trades about 0.01 of its potential returns per unit of risk. Chatham Rock Phosphate is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  6.00  in Chatham Rock Phosphate on December 28, 2024 and sell it today you would earn a total of  1.00  from holding Chatham Rock Phosphate or generate 16.67% return on investment over 90 days.

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

Bri Chem Corp  vs.  Chatham Rock Phosphate

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.

Chatham Rock Phosphate

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chatham Rock Phosphate are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chatham Rock showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bri Chem and Chatham Rock

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

The idea behind Bri Chem Corp and Chatham Rock Phosphate 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.