Correlation Between Petrofac and Bri Chem

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

By analyzing existing cross correlation between Petrofac Ltd ADR and Bri Chem Corp, you can compare the effects of market volatilities on Petrofac 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 Petrofac with a short position of Bri Chem. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petrofac and Bri Chem.

Diversification Opportunities for Petrofac and Bri Chem

0.46

Correlation Coefficient

Petrofac  Bri Chem

Very weak diversification

The 3 months correlation between Petrofac and Bri is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Petrofac Ltd ADR 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 Petrofac 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 Petrofac Ltd ADR 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 Petrofac i.e., Petrofac and Bri Chem go up and down completely randomly.

Pair Corralation between Petrofac and Bri Chem

Assuming the 90 days horizon Petrofac Ltd ADR is expected to under-perform the Bri Chem. In addition to that, Petrofac is 1.51 times more volatile than Bri Chem Corp. It trades about -0.06 of its total potential returns per unit of risk. Bri Chem Corp is currently generating about 0.75 per unit of volatility. If you would invest  14.00  in Bri Chem Corp on September 17, 2024 and sell it today you would earn a total of  16.00  from holding Bri Chem Corp or generate 114.29% return on investment over 90 days.

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

Petrofac Ltd ADR  vs.  Bri Chem Corp

Petrofac ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petrofac Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Bri Chem Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bri Chem Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Bri Chem reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petrofac and Bri Chem

The main advantage of trading using opposite Petrofac and Bri Chem positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Petrofac 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 Petrofac Ltd ADR 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.