Correlation Between Forum Energy and Boss Resources

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

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

Diversification Opportunities for Forum Energy and Boss Resources

0.76

Correlation Coefficient

Forum Energy  Boss Resources

Poor diversification

The 3 months correlation between Forum and Boss is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Forum Energy Metals and Boss Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boss Resources and Forum 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 Forum Energy Metals are associated (or correlated) with Boss Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boss Resources has no effect on the direction of Forum Energy i.e., Forum Energy and Boss Resources go up and down completely randomly.

Pair Corralation between Forum Energy and Boss Resources

Assuming the 90 days horizon Forum Energy Metals is expected to generate 2.41 times more return on investment than Boss Resources. However, Forum Energy is 2.41 times more volatile than Boss Resources. It trades about 0.03 of its potential returns per unit of risk. Boss Resources is currently generating about 0.04 per unit of risk. If you would invest  6.00  in Forum Energy Metals on September 5, 2024 and sell it today you would lose (0.61) from holding Forum Energy Metals or give up 10.17% of portfolio value over 90 days.

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

Forum Energy Metals  vs.  Boss Resources

Forum Energy Metals

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Forum Energy Metals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting technical and fundamental indicators, Forum Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Boss Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Boss Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Boss Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Forum Energy and Boss Resources

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

The idea behind Forum Energy Metals and Boss Resources 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.