Correlation Between Forum Energy and Birchcliff Energy

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

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

Diversification Opportunities for Forum Energy and Birchcliff Energy

-0.17

Correlation Coefficient

Forum Energy  Birchcliff Energy

Good diversification

The 3 months correlation between Forum and Birchcliff is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Forum Energy Metals and Birchcliff Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Birchcliff Energy and Forum Energy 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 Forum Energy Metals are associated (or correlated) with Birchcliff Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Birchcliff Energy has no effect on the direction of Forum Energy i.e., Forum Energy and Birchcliff Energy go up and down completely randomly.

Pair Corralation between Forum Energy and Birchcliff Energy

Assuming the 90 days horizon Forum Energy Metals is expected to generate 3.14 times more return on investment than Birchcliff Energy. However, Forum Energy is 3.14 times more volatile than Birchcliff Energy. It trades about 0.0 of its potential returns per unit of risk. Birchcliff Energy is currently generating about -0.03 per unit of risk. If you would invest  8.00  in Forum Energy Metals on September 1, 2024 and sell it today you would lose (1.00) from holding Forum Energy Metals or give up 12.5% of portfolio value over 90 days.

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

Forum Energy Metals  vs.  Birchcliff Energy

Forum Energy Metals

Risk-Adjusted Performance

0 of 100

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 fairly stable basic indicators, Forum Energy is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Birchcliff Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Birchcliff Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Birchcliff Energy is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Forum Energy and Birchcliff Energy

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

The idea behind Forum Energy Metals and Birchcliff Energy 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.

Check out your portfolio center.

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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .