Correlation Between Tree Island and BMTC

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

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

Diversification Opportunities for Tree Island and BMTC

0.24

Correlation Coefficient

Tree Island  BMTC

Modest diversification

The 3 months correlation between Tree and BMTC is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Tree Island Steel and BMTC Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMTC Group and Tree Island 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 Tree Island Steel are associated (or correlated) with BMTC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMTC Group has no effect on the direction of Tree Island i.e., Tree Island and BMTC go up and down completely randomly.

Pair Corralation between Tree Island and BMTC

Assuming the 90 days trading horizon Tree Island Steel is expected to generate 1.78 times more return on investment than BMTC. However, Tree Island is 1.78 times more volatile than BMTC Group. It trades about 0.12 of its potential returns per unit of risk. BMTC Group is currently generating about 0.04 per unit of risk. If you would invest  261.00  in Tree Island Steel on September 5, 2024 and sell it today you would earn a total of  50.00  from holding Tree Island Steel or generate 19.16% return on investment over 90 days.

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

Tree Island Steel  vs.  BMTC Group

Tree Island Steel

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tree Island Steel are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating essential indicators, Tree Island displayed solid returns over the last few months and may actually be approaching a breakup point.

BMTC Group

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BMTC Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMTC is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Tree Island and BMTC

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

The idea behind Tree Island Steel and BMTC Group 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.