Correlation Between Defense Metals and Bri Chem

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Can any of the company-specific risk be diversified away by investing in both Defense Metals and Bri Chem 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 Defense Metals and Bri Chem into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Defense Metals Corp and Bri Chem Corp, you can compare the effects of market volatilities on Defense Metals and Bri Chem 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 Defense Metals with a short position of Bri Chem. Check out your portfolio center. Please also check ongoing floating volatility patterns of Defense Metals and Bri Chem.

Diversification Opportunities for Defense Metals and Bri Chem

DefenseBriDiversified AwayDefenseBriDiversified Away100%
0.66
  Correlation Coefficient

Poor diversification

The 3 months correlation between Defense and Bri is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Defense Metals Corp and Bri Chem Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bri Chem Corp and Defense Metals 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 Defense Metals Corp are associated (or correlated) with Bri Chem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bri Chem Corp has no effect on the direction of Defense Metals i.e., Defense Metals and Bri Chem go up and down completely randomly.

Pair Corralation between Defense Metals and Bri Chem

Assuming the 90 days trading horizon Defense Metals Corp is expected to generate 1.0 times more return on investment than Bri Chem. However, Defense Metals is 1.0 times more volatile than Bri Chem Corp. It trades about 0.11 of its potential returns per unit of risk. Bri Chem Corp is currently generating about 0.1 per unit of risk. If you would invest  9.00  in Defense Metals Corp on September 21, 2024 and sell it today you would earn a total of  4.00  from holding Defense Metals Corp or generate 44.44% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy98.44%
ValuesDaily Returns

Defense Metals Corp  vs.  Bri Chem Corp

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -30-20-100102030
JavaScript chart by amCharts 3.21.15DEFN BRY
       Timeline  
Defense Metals Corp 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Defense Metals Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Defense Metals showed solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec0.080.090.10.110.120.130.140.150.16
Bri Chem Corp 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Bri Chem Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Bri Chem displayed solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec0.20.250.30.350.4

Defense Metals and Bri Chem Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-23.65-17.71-11.78-5.840.0996.1712.4418.7224.99 0.00550.00600.00650.0070
JavaScript chart by amCharts 3.21.15DEFN BRY
       Returns  

Pair Trading with Defense Metals and Bri Chem

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

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