Correlation Between BTU Metals and Guangdong Investment

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

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

Diversification Opportunities for BTU Metals and Guangdong Investment

-0.54

Correlation Coefficient

BTU Metals  Guangdong Investment

Excellent diversification

The 3 months correlation between BTU and Guangdong is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding BTU Metals Corp and Guangdong Investment Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Investment and BTU Metals 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 BTU Metals Corp are associated (or correlated) with Guangdong Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Investment has no effect on the direction of BTU Metals i.e., BTU Metals and Guangdong Investment go up and down completely randomly.

Pair Corralation between BTU Metals and Guangdong Investment

Assuming the 90 days horizon BTU Metals Corp is expected to generate 6.22 times more return on investment than Guangdong Investment. However, BTU Metals is 6.22 times more volatile than Guangdong Investment Limited. It trades about 0.12 of its potential returns per unit of risk. Guangdong Investment Limited is currently generating about 0.01 per unit of risk. If you would invest  1.68  in BTU Metals Corp on December 20, 2024 and sell it today you would earn a total of  1.11  from holding BTU Metals Corp or generate 66.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	93.44%
Values	Daily Returns

BTU Metals Corp  vs.  Guangdong Investment Limited

BTU Metals Corp

Risk-Adjusted Performance

OK

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

Guangdong Investment

Risk-Adjusted Performance

Very Weak

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

Pair Trading with BTU Metals and Guangdong Investment

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

The idea behind BTU Metals Corp and Guangdong Investment Limited 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.