Correlation Between BMTC and E L

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

By analyzing existing cross correlation between BMTC Group and E L Financial Corp, you can compare the effects of market volatilities on BMTC and E L 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 BMTC with a short position of E L. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMTC and E L.

Diversification Opportunities for BMTC and E L

-0.02

Correlation Coefficient

BMTC  E L

Good diversification

The 3 months correlation between BMTC and ELF is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding BMTC Group and E L Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E L Financial and BMTC 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 BMTC Group are associated (or correlated) with E L. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E L Financial has no effect on the direction of BMTC i.e., BMTC and E L go up and down completely randomly.

Pair Corralation between BMTC and E L

Assuming the 90 days trading horizon BMTC Group is expected to generate 0.84 times more return on investment than E L. However, BMTC Group is 1.19 times less risky than E L. It trades about 0.6 of its potential returns per unit of risk. E L Financial Corp is currently generating about 0.1 per unit of risk. If you would invest  1,280  in BMTC Group on October 20, 2024 and sell it today you would earn a total of  265.00  from holding BMTC Group or generate 20.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

BMTC Group  vs.  E L Financial Corp

BMTC Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BMTC Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BMTC displayed solid returns over the last few months and may actually be approaching a breakup point.

E L Financial

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in E L Financial Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, E L may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with BMTC and E L

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

The idea behind BMTC Group and E L Financial Corp 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.