Correlation Between BTU Metals and GENERAL

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

Diversification Opportunities for BTU Metals and GENERAL

0.1

Correlation Coefficient

BTU Metals  GENERAL

Average diversification

The 3 months correlation between BTU and GENERAL is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding BTU Metals Corp and GENERAL ELEC CAP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GENERAL ELEC CAP 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 GENERAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GENERAL ELEC CAP has no effect on the direction of BTU Metals i.e., BTU Metals and GENERAL go up and down completely randomly.

Pair Corralation between BTU Metals and GENERAL

Assuming the 90 days horizon BTU Metals Corp is expected to generate 6.67 times more return on investment than GENERAL. However, BTU Metals is 6.67 times more volatile than GENERAL ELEC CAP. It trades about 0.11 of its potential returns per unit of risk. GENERAL ELEC CAP is currently generating about -0.03 per unit of risk. If you would invest  1.79  in BTU Metals Corp on December 22, 2024 and sell it today you would earn a total of  1.00  from holding BTU Metals Corp or generate 55.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	32.26%
Values	Daily Returns

BTU Metals Corp  vs.  GENERAL ELEC CAP

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.

GENERAL ELEC CAP

Risk-Adjusted Performance

Very Weak

Over the last 90 days GENERAL ELEC CAP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, GENERAL is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BTU Metals and GENERAL

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

The idea behind BTU Metals Corp and GENERAL ELEC CAP 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.