Correlation Between Bri Chem and Petrofac

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

By analyzing existing cross correlation between Bri Chem Corp and Petrofac Ltd ADR, you can compare the effects of market volatilities on Bri Chem and Petrofac 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 Bri Chem with a short position of Petrofac. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bri Chem and Petrofac.

Diversification Opportunities for Bri Chem and Petrofac

0.67

Correlation Coefficient

Bri Chem  Petrofac

Poor diversification

The 3 months correlation between Bri and Petrofac is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Bri Chem Corp and Petrofac Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petrofac ADR and Bri Chem 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 Bri Chem Corp are associated (or correlated) with Petrofac. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petrofac ADR has no effect on the direction of Bri Chem i.e., Bri Chem and Petrofac go up and down completely randomly.

Pair Corralation between Bri Chem and Petrofac

Assuming the 90 days horizon Bri Chem Corp is expected to generate 0.8 times more return on investment than Petrofac. However, Bri Chem Corp is 1.25 times less risky than Petrofac. It trades about 0.01 of its potential returns per unit of risk. Petrofac Ltd ADR is currently generating about -0.03 per unit of risk. If you would invest  22.00  in Bri Chem Corp on September 4, 2024 and sell it today you would lose (3.00) from holding Bri Chem Corp or give up 13.64% of portfolio value over 90 days.

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

Bri Chem Corp  vs.  Petrofac Ltd ADR

Bri Chem Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bri Chem Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Bri Chem is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Petrofac ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petrofac Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Bri Chem and Petrofac

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

The idea behind Bri Chem Corp and Petrofac Ltd ADR 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.

Check out your portfolio center.

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 Stocks Directory module to find actively traded stocks across global markets.