Correlation Between National Energy and Bri-Chem Corp

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

By analyzing existing cross correlation between National Energy Services and Bri Chem Corp, you can compare the effects of market volatilities on National Energy and Bri-Chem Corp 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 National Energy with a short position of Bri-Chem Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Energy and Bri-Chem Corp.

Diversification Opportunities for National Energy and Bri-Chem Corp

0.17

Correlation Coefficient

National Energy  Bri-Chem Corp

Average diversification

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

Pair Corralation between National Energy and Bri-Chem Corp

Given the investment horizon of 90 days National Energy Services is expected to under-perform the Bri-Chem Corp. But the stock apears to be less risky and, when comparing its historical volatility, National Energy Services is 7.21 times less risky than Bri-Chem Corp. The stock trades about -0.45 of its potential returns per unit of risk. The Bri Chem Corp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  25.00  in Bri Chem Corp on December 2, 2024 and sell it today you would lose (2.00) from holding Bri Chem Corp or give up 8.0% of portfolio value over 90 days.

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

National Energy Services  vs.  Bri Chem Corp

National Energy Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unfluctuating performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Bri Chem Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bri Chem Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Bri-Chem Corp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Energy and Bri-Chem Corp

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

The idea behind National Energy Services and Bri Chem 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.