Correlation Between Anglo American and Berkeley Energia

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

By analyzing existing cross correlation between Anglo American plc and Berkeley Energia Limited, you can compare the effects of market volatilities on Anglo American and Berkeley Energia 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 Anglo American with a short position of Berkeley Energia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anglo American and Berkeley Energia.

Diversification Opportunities for Anglo American and Berkeley Energia

0.52

Correlation Coefficient

Anglo American  Berkeley Energia

Very weak diversification

The 3 months correlation between Anglo and Berkeley is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Anglo American plc and Berkeley Energia Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkeley Energia and Anglo American 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 Anglo American plc are associated (or correlated) with Berkeley Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkeley Energia has no effect on the direction of Anglo American i.e., Anglo American and Berkeley Energia go up and down completely randomly.

Pair Corralation between Anglo American and Berkeley Energia

Assuming the 90 days trading horizon Anglo American plc is expected to generate 0.46 times more return on investment than Berkeley Energia. However, Anglo American plc is 2.18 times less risky than Berkeley Energia. It trades about 0.16 of its potential returns per unit of risk. Berkeley Energia Limited is currently generating about 0.03 per unit of risk. If you would invest  2,443  in Anglo American plc on September 13, 2024 and sell it today you would earn a total of  618.00  from holding Anglo American plc or generate 25.3% return on investment over 90 days.

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

Anglo American plc  vs.  Berkeley Energia Limited

Anglo American plc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Anglo American plc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Anglo American reported solid returns over the last few months and may actually be approaching a breakup point.

Berkeley Energia

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Berkeley Energia Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Berkeley Energia may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Anglo American and Berkeley Energia

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

The idea behind Anglo American plc and Berkeley Energia Limited 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.