Correlation Between Birchcliff Energy and PHX Energy

Can any of the company-specific risk be diversified away by investing in both Birchcliff Energy and PHX 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 PHX 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 PHX Energy Services, you can compare the effects of market volatilities on Birchcliff Energy and PHX 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 PHX Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Birchcliff Energy and PHX Energy.

Diversification Opportunities for Birchcliff Energy and PHX Energy

0.22

Correlation Coefficient

Birchcliff Energy  PHX Energy

Modest diversification

The 3 months correlation between Birchcliff and PHX is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Birchcliff Energy and PHX Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PHX Energy Services 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 PHX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PHX Energy Services has no effect on the direction of Birchcliff Energy i.e., Birchcliff Energy and PHX Energy go up and down completely randomly.

Pair Corralation between Birchcliff Energy and PHX Energy

Assuming the 90 days trading horizon Birchcliff Energy is expected to under-perform the PHX Energy. In addition to that, Birchcliff Energy is 1.14 times more volatile than PHX Energy Services. It trades about -0.12 of its total potential returns per unit of risk. PHX Energy Services is currently generating about -0.03 per unit of volatility. If you would invest  948.00  in PHX Energy Services on September 22, 2024 and sell it today you would lose (46.00) from holding PHX Energy Services or give up 4.85% of portfolio value over 90 days.

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

Birchcliff Energy  vs.  PHX Energy Services

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 unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

PHX Energy Services

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Birchcliff Energy and PHX Energy

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

The idea behind Birchcliff Energy and PHX Energy Services 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.