Correlation Between BF Investment and IG Petrochemicals

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

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

Diversification Opportunities for BF Investment and IG Petrochemicals

-0.15

Correlation Coefficient

BF Investment  IG Petrochemicals

Good diversification

The 3 months correlation between BFINVEST and IGPL is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding BF Investment Limited and IG Petrochemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IG Petrochemicals and BF Investment 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 BF Investment Limited are associated (or correlated) with IG Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IG Petrochemicals has no effect on the direction of BF Investment i.e., BF Investment and IG Petrochemicals go up and down completely randomly.

Pair Corralation between BF Investment and IG Petrochemicals

Assuming the 90 days trading horizon BF Investment is expected to generate 1.2 times less return on investment than IG Petrochemicals. But when comparing it to its historical volatility, BF Investment Limited is 1.45 times less risky than IG Petrochemicals. It trades about 0.02 of its potential returns per unit of risk. IG Petrochemicals Limited is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  55,940  in IG Petrochemicals Limited on September 26, 2024 and sell it today you would earn a total of  50.00  from holding IG Petrochemicals Limited or generate 0.09% return on investment over 90 days.

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

BF Investment Limited  vs.  IG Petrochemicals Limited

BF Investment Limited

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BF Investment Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical and fundamental indicators, BF Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.

IG Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IG Petrochemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IG Petrochemicals is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with BF Investment and IG Petrochemicals

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

The idea behind BF Investment Limited and IG Petrochemicals Limited 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.