Correlation Between Iron Road and Beach Energy

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

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

Diversification Opportunities for Iron Road and Beach Energy

-0.67

Correlation Coefficient

Iron Road  Beach Energy

Excellent diversification

The 3 months correlation between Iron and Beach is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Iron Road and Beach Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beach Energy and Iron Road 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 Iron Road are associated (or correlated) with Beach Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beach Energy has no effect on the direction of Iron Road i.e., Iron Road and Beach Energy go up and down completely randomly.

Pair Corralation between Iron Road and Beach Energy

Assuming the 90 days trading horizon Iron Road is expected to under-perform the Beach Energy. In addition to that, Iron Road is 1.79 times more volatile than Beach Energy. It trades about -0.09 of its total potential returns per unit of risk. Beach Energy is currently generating about 0.51 per unit of volatility. If you would invest  136.00  in Beach Energy on October 21, 2024 and sell it today you would earn a total of  14.00  from holding Beach Energy or generate 10.29% return on investment over 90 days.

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

Iron Road  vs.  Beach Energy

Iron Road

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iron Road has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Beach Energy

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beach Energy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Beach Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Iron Road and Beach Energy

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

The idea behind Iron Road and Beach 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.

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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 Global Correlations module to find global opportunities by holding instruments from different markets.