Correlation Between BTU Metals and West African

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

Diversification Opportunities for BTU Metals and West African

0.69

Correlation Coefficient

BTU Metals  West African

Poor diversification

The 3 months correlation between BTU and West is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding BTU Metals Corp and West African Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West African Resources 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 West African. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West African Resources has no effect on the direction of BTU Metals i.e., BTU Metals and West African go up and down completely randomly.

Pair Corralation between BTU Metals and West African

Assuming the 90 days horizon BTU Metals Corp is expected to generate 2.61 times more return on investment than West African. However, BTU Metals is 2.61 times more volatile than West African Resources. It trades about 0.11 of its potential returns per unit of risk. West African Resources is currently generating about 0.17 per unit of risk. If you would invest  2.00  in BTU Metals Corp on December 27, 2024 and sell it today you would earn a total of  0.95  from holding BTU Metals Corp or generate 47.5% return on investment over 90 days.

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

BTU Metals Corp  vs.  West African Resources

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 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady primary indicators, BTU Metals reported solid returns over the last few months and may actually be approaching a breakup point.

West African Resources

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in West African Resources are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, West African reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BTU Metals and West African

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

The idea behind BTU Metals Corp and West African Resources 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.