Correlation Between Prime Meridian and Bell Copper

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

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

Diversification Opportunities for Prime Meridian and Bell Copper

0.48

Correlation Coefficient

Prime Meridian  Bell Copper

Very weak diversification

The 3 months correlation between Prime and Bell is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Prime Meridian Resources and Bell Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bell Copper and Prime Meridian 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 Prime Meridian Resources are associated (or correlated) with Bell Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bell Copper has no effect on the direction of Prime Meridian i.e., Prime Meridian and Bell Copper go up and down completely randomly.

Pair Corralation between Prime Meridian and Bell Copper

Assuming the 90 days horizon Prime Meridian is expected to generate 1.16 times less return on investment than Bell Copper. But when comparing it to its historical volatility, Prime Meridian Resources is 6.81 times less risky than Bell Copper. It trades about 0.22 of its potential returns per unit of risk. Bell Copper is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3.13  in Bell Copper on October 8, 2024 and sell it today you would lose (0.13) from holding Bell Copper or give up 4.15% of portfolio value over 90 days.

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

Prime Meridian Resources  vs.  Bell Copper

Prime Meridian Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prime Meridian Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Bell Copper

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bell Copper are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Bell Copper reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prime Meridian and Bell Copper

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

The idea behind Prime Meridian Resources and Bell Copper 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.