Correlation Between Methanex and Gulf Resources

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

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

Diversification Opportunities for Methanex and Gulf Resources

-0.41

Correlation Coefficient

Methanex  Gulf Resources

Very good diversification

The 3 months correlation between Methanex and Gulf is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Methanex and Gulf Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gulf Resources and Methanex 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 Methanex are associated (or correlated) with Gulf Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gulf Resources has no effect on the direction of Methanex i.e., Methanex and Gulf Resources go up and down completely randomly.

Pair Corralation between Methanex and Gulf Resources

Given the investment horizon of 90 days Methanex is expected to generate 0.38 times more return on investment than Gulf Resources. However, Methanex is 2.65 times less risky than Gulf Resources. It trades about 0.01 of its potential returns per unit of risk. Gulf Resources is currently generating about -0.04 per unit of risk. If you would invest  4,916  in Methanex on October 20, 2024 and sell it today you would earn a total of  16.00  from holding Methanex or generate 0.33% return on investment over 90 days.

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

Methanex  vs.  Gulf Resources

Methanex

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Methanex are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Methanex demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Gulf Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gulf Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Gulf Resources is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Methanex and Gulf Resources

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

The idea behind Methanex and Gulf 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.