Correlation Between Alliance Resource and Berkshire Hathaway

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

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

Diversification Opportunities for Alliance Resource and Berkshire Hathaway

-0.17

Correlation Coefficient

Alliance Resource  Berkshire Hathaway

Good diversification

The 3 months correlation between Alliance and Berkshire is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Resource Partners and Berkshire Hathaway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkshire Hathaway and Alliance Resource 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 Alliance Resource Partners are associated (or correlated) with Berkshire Hathaway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkshire Hathaway has no effect on the direction of Alliance Resource i.e., Alliance Resource and Berkshire Hathaway go up and down completely randomly.

Pair Corralation between Alliance Resource and Berkshire Hathaway

Given the investment horizon of 90 days Alliance Resource Partners is expected to generate 2.17 times more return on investment than Berkshire Hathaway. However, Alliance Resource is 2.17 times more volatile than Berkshire Hathaway. It trades about 0.27 of its potential returns per unit of risk. Berkshire Hathaway is currently generating about 0.07 per unit of risk. If you would invest  2,044  in Alliance Resource Partners on February 11, 2024 and sell it today you would earn a total of  182.00  from holding Alliance Resource Partners or generate 8.9% return on investment over 90 days.

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

Alliance Resource Partners  vs.  Berkshire Hathaway

Alliance Resource

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Resource Partners are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady essential indicators, Alliance Resource reported solid returns over the last few months and may actually be approaching a breakup point.

Berkshire Hathaway

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Berkshire Hathaway is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alliance Resource and Berkshire Hathaway

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

The idea behind Alliance Resource Partners and Berkshire Hathaway 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.