Correlation Between Focus Graphite and BCM Resources

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

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

Diversification Opportunities for Focus Graphite and BCM Resources

0.5

Correlation Coefficient

Focus Graphite  BCM Resources

Very weak diversification

The 3 months correlation between Focus and BCM is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Focus Graphite and BCM Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BCM Resources and Focus Graphite 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 Focus Graphite are associated (or correlated) with BCM Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BCM Resources has no effect on the direction of Focus Graphite i.e., Focus Graphite and BCM Resources go up and down completely randomly.

Pair Corralation between Focus Graphite and BCM Resources

Assuming the 90 days horizon Focus Graphite is expected to generate 0.81 times more return on investment than BCM Resources. However, Focus Graphite is 1.24 times less risky than BCM Resources. It trades about 0.2 of its potential returns per unit of risk. BCM Resources is currently generating about 0.01 per unit of risk. If you would invest  5.00  in Focus Graphite on September 14, 2024 and sell it today you would earn a total of  2.00  from holding Focus Graphite or generate 40.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Focus Graphite  vs.  BCM Resources

Focus Graphite

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Focus Graphite are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Focus Graphite reported solid returns over the last few months and may actually be approaching a breakup point.

BCM Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BCM Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BCM Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Focus Graphite and BCM Resources

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

The idea behind Focus Graphite and BCM Resources 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.