Correlation Between Elcora Advanced and BCM Resources

Can any of the company-specific risk be diversified away by investing in both Elcora Advanced and BCM Resources 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 Elcora Advanced and BCM Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Elcora Advanced Materials and BCM Resources, you can compare the effects of market volatilities on Elcora Advanced and BCM Resources 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 Elcora Advanced with a short position of BCM Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elcora Advanced and BCM Resources.

Diversification Opportunities for Elcora Advanced and BCM Resources

-0.01

Correlation Coefficient

Elcora Advanced  BCM Resources

Good diversification

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

Pair Corralation between Elcora Advanced and BCM Resources

Assuming the 90 days horizon Elcora Advanced is expected to generate 7.72 times less return on investment than BCM Resources. But when comparing it to its historical volatility, Elcora Advanced Materials is 1.08 times less risky than BCM Resources. It trades about 0.01 of its potential returns per unit of risk. BCM Resources is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4.00  in BCM Resources on September 1, 2024 and sell it today you would lose (0.47) from holding BCM Resources or give up 11.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.92%
Values	Daily Returns

Elcora Advanced Materials  vs.  BCM Resources

Elcora Advanced Materials

Risk-Adjusted Performance

0 of 100

Very Weak

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

BCM Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BCM Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, BCM Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Elcora Advanced and BCM Resources

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

The idea behind Elcora Advanced Materials and BCM 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.