Correlation Between CVR Partners and BTU Metals

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

By analyzing existing cross correlation between CVR Partners LP and BTU Metals Corp, you can compare the effects of market volatilities on CVR Partners and BTU Metals 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 CVR Partners with a short position of BTU Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVR Partners and BTU Metals.

Diversification Opportunities for CVR Partners and BTU Metals

-0.11

Correlation Coefficient

CVR Partners  BTU Metals

Good diversification

The 3 months correlation between CVR and BTU is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding CVR Partners LP and BTU Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BTU Metals Corp and CVR Partners 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 CVR Partners LP are associated (or correlated) with BTU Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BTU Metals Corp has no effect on the direction of CVR Partners i.e., CVR Partners and BTU Metals go up and down completely randomly.

Pair Corralation between CVR Partners and BTU Metals

Considering the 90-day investment horizon CVR Partners is expected to generate 17.81 times less return on investment than BTU Metals. But when comparing it to its historical volatility, CVR Partners LP is 7.29 times less risky than BTU Metals. It trades about 0.04 of its potential returns per unit of risk. BTU Metals Corp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2.01  in BTU Metals Corp on December 17, 2024 and sell it today you would earn a total of  0.78  from holding BTU Metals Corp or generate 38.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

CVR Partners LP  vs.  BTU Metals Corp

CVR Partners LP

Risk-Adjusted Performance

Insignificant

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

BTU Metals Corp

Risk-Adjusted Performance

OK

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

Pair Trading with CVR Partners and BTU Metals

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

The idea behind CVR Partners LP and BTU Metals 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.