Correlation Between Birchcliff Energy and Gear Energy

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

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

Diversification Opportunities for Birchcliff Energy and Gear Energy

0.81

Correlation Coefficient

Birchcliff Energy  Gear Energy

Very poor diversification

The 3 months correlation between Birchcliff and Gear is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Birchcliff Energy and Gear Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gear Energy and Birchcliff 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 Birchcliff Energy are associated (or correlated) with Gear Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gear Energy has no effect on the direction of Birchcliff Energy i.e., Birchcliff Energy and Gear Energy go up and down completely randomly.

Pair Corralation between Birchcliff Energy and Gear Energy

Assuming the 90 days trading horizon Birchcliff Energy is expected to under-perform the Gear Energy. But the stock apears to be less risky and, when comparing its historical volatility, Birchcliff Energy is 1.34 times less risky than Gear Energy. The stock trades about -0.05 of its potential returns per unit of risk. The Gear Energy is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  63.00  in Gear Energy on September 5, 2024 and sell it today you would lose (5.00) from holding Gear Energy or give up 7.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Birchcliff Energy  vs.  Gear Energy

Birchcliff Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Birchcliff Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Gear Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gear Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Gear Energy is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Birchcliff Energy and Gear Energy

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

The idea behind Birchcliff Energy and Gear Energy 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.