Correlation Between BMTC and E L

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

By analyzing existing cross correlation between BMTC Group and E L Financial Corp, you can compare the effects of market volatilities on BMTC and E L 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 BMTC with a short position of E L. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMTC and E L.

Diversification Opportunities for BMTC and E L

0.55

Correlation Coefficient

BMTC  E L

Very weak diversification

The 3 months correlation between BMTC and ELF is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding BMTC Group and E L Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E L Financial and BMTC 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 BMTC Group are associated (or correlated) with E L. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E L Financial has no effect on the direction of BMTC i.e., BMTC and E L go up and down completely randomly.

Pair Corralation between BMTC and E L

Assuming the 90 days trading horizon BMTC Group is expected to under-perform the E L. But the stock apears to be less risky and, when comparing its historical volatility, BMTC Group is 1.01 times less risky than E L. The stock trades about -0.01 of its potential returns per unit of risk. The E L Financial Corp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  129,629  in E L Financial Corp on September 17, 2024 and sell it today you would earn a total of  9,171  from holding E L Financial Corp or generate 7.07% return on investment over 90 days.

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

BMTC Group  vs.  E L Financial Corp

BMTC Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

E L Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in E L Financial Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, E L may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BMTC and E L

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

The idea behind BMTC Group and E L Financial 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .