Correlation Between BTU Metals and MARATHON

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

Diversification Opportunities for BTU Metals and MARATHON

-0.05

Correlation Coefficient

BTU Metals  MARATHON

Good diversification

The 3 months correlation between BTU and MARATHON is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding BTU Metals Corp and MARATHON PETROLEUM P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MARATHON PETROLEUM 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 MARATHON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MARATHON PETROLEUM has no effect on the direction of BTU Metals i.e., BTU Metals and MARATHON go up and down completely randomly.

Pair Corralation between BTU Metals and MARATHON

Assuming the 90 days horizon BTU Metals Corp is expected to generate 20.27 times more return on investment than MARATHON. However, BTU Metals is 20.27 times more volatile than MARATHON PETROLEUM P. It trades about 0.02 of its potential returns per unit of risk. MARATHON PETROLEUM P is currently generating about -0.19 per unit of risk. If you would invest  2.01  in BTU Metals Corp on October 10, 2024 and sell it today you would lose (0.01) from holding BTU Metals Corp or give up 0.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

BTU Metals Corp  vs.  MARATHON PETROLEUM P

BTU Metals Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

MARATHON PETROLEUM

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with BTU Metals and MARATHON

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

The idea behind BTU Metals Corp and MARATHON PETROLEUM P 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.