Correlation Between Bri Chem and First Mining
Can any of the company-specific risk be diversified away by investing in both Bri Chem and First Mining 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 Bri Chem and First Mining into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bri Chem Corp and First Mining Gold, you can compare the effects of market volatilities on Bri Chem and First Mining 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 Bri Chem with a short position of First Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bri Chem and First Mining.
Diversification Opportunities for Bri Chem and First Mining
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Bri and First is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Bri Chem Corp and First Mining Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Mining Gold and Bri Chem 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 Bri Chem Corp are associated (or correlated) with First Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Mining Gold has no effect on the direction of Bri Chem i.e., Bri Chem and First Mining go up and down completely randomly.
Pair Corralation between Bri Chem and First Mining
Assuming the 90 days trading horizon Bri Chem is expected to generate 3.25 times less return on investment than First Mining. But when comparing it to its historical volatility, Bri Chem Corp is 1.87 times less risky than First Mining. It trades about 0.08 of its potential returns per unit of risk. First Mining Gold is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 3.77 in First Mining Gold on November 2, 2024 and sell it today you would earn a total of 9.23 from holding First Mining Gold or generate 244.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bri Chem Corp vs. First Mining Gold
Performance |
| Timeline |
| Bri Chem Corp |
| First Mining Gold |
Bri Chem and First Mining Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bri Chem and First Mining
The main advantage of trading using opposite Bri Chem and First Mining positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bri Chem position performs unexpectedly, First Mining 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 First Mining will offset losses from the drop in First Mining's long position.The idea behind Bri Chem Corp and First Mining Gold 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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