Correlation Between Gear Energy and Birchcliff Energy

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

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

Diversification Opportunities for Gear Energy and Birchcliff Energy

0.89

Correlation Coefficient

Gear Energy  Birchcliff Energy

Very poor diversification

The 3 months correlation between Gear and Birchcliff is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Gear Energy and Birchcliff Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Birchcliff Energy and Gear 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 Gear Energy are associated (or correlated) with Birchcliff Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Birchcliff Energy has no effect on the direction of Gear Energy i.e., Gear Energy and Birchcliff Energy go up and down completely randomly.

Pair Corralation between Gear Energy and Birchcliff Energy

Assuming the 90 days horizon Gear Energy is expected to under-perform the Birchcliff Energy. In addition to that, Gear Energy is 1.11 times more volatile than Birchcliff Energy. It trades about -0.1 of its total potential returns per unit of risk. Birchcliff Energy is currently generating about -0.06 per unit of volatility. If you would invest  413.00  in Birchcliff Energy on September 2, 2024 and sell it today you would lose (35.00) from holding Birchcliff Energy or give up 8.47% of portfolio value over 90 days.

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

Gear Energy  vs.  Birchcliff Energy

Gear Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gear Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Gear Energy and Birchcliff Energy

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

The idea behind Gear Energy and Birchcliff Energy 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.