Correlation Between Fortescue Metals and Bitterroot Resources

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

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

Diversification Opportunities for Fortescue Metals and Bitterroot Resources

-0.25

Correlation Coefficient

Fortescue Metals  Bitterroot Resources

Very good diversification

The 3 months correlation between Fortescue and Bitterroot is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group and Bitterroot Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bitterroot Resources and Fortescue 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 Fortescue Metals Group are associated (or correlated) with Bitterroot Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bitterroot Resources has no effect on the direction of Fortescue Metals i.e., Fortescue Metals and Bitterroot Resources go up and down completely randomly.

Pair Corralation between Fortescue Metals and Bitterroot Resources

Assuming the 90 days horizon Fortescue Metals Group is expected to under-perform the Bitterroot Resources. But the otc stock apears to be less risky and, when comparing its historical volatility, Fortescue Metals Group is 7.65 times less risky than Bitterroot Resources. The otc stock trades about -0.12 of its potential returns per unit of risk. The Bitterroot Resources is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3.00  in Bitterroot Resources on December 1, 2024 and sell it today you would lose (0.60) from holding Bitterroot Resources or give up 20.0% of portfolio value over 90 days.

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

Fortescue Metals Group  vs.  Bitterroot Resources

Fortescue Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fortescue Metals Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Bitterroot Resources

Risk-Adjusted Performance

Insignificant

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

Pair Trading with Fortescue Metals and Bitterroot Resources

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

The idea behind Fortescue Metals Group and Bitterroot 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.