Correlation Between Brompton European and Forum Energy

Can any of the company-specific risk be diversified away by investing in both Brompton European and Forum Energy 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 Brompton European and Forum Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Brompton European Dividend and Forum Energy Metals, you can compare the effects of market volatilities on Brompton European and Forum Energy 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 Brompton European with a short position of Forum Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brompton European and Forum Energy.

Diversification Opportunities for Brompton European and Forum Energy

0.0

Correlation Coefficient

Brompton European  Forum Energy

Pay attention - limited upside

The 3 months correlation between Brompton and Forum is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Brompton European Dividend and Forum Energy Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Forum Energy Metals and Brompton European 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 Brompton European Dividend are associated (or correlated) with Forum Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Forum Energy Metals has no effect on the direction of Brompton European i.e., Brompton European and Forum Energy go up and down completely randomly.

Pair Corralation between Brompton European and Forum Energy

Assuming the 90 days trading horizon Brompton European is expected to generate 1.06 times less return on investment than Forum Energy. But when comparing it to its historical volatility, Brompton European Dividend is 6.66 times less risky than Forum Energy. It trades about 0.06 of its potential returns per unit of risk. Forum Energy Metals is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  11.00  in Forum Energy Metals on November 20, 2024 and sell it today you would lose (5.00) from holding Forum Energy Metals or give up 45.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Brompton European Dividend  vs.  Forum Energy Metals

Brompton European

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brompton European Dividend are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Brompton European may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Forum Energy Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Forum Energy Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in March 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Brompton European and Forum Energy

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

The idea behind Brompton European Dividend and Forum Energy Metals 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.