Correlation Between SPASX 300 and BCI Minerals

Can any of the company-specific risk be diversified away by investing in both SPASX 300 and BCI Minerals 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 SPASX 300 and BCI Minerals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SPASX 300 Media and BCI Minerals Limited, you can compare the effects of market volatilities on SPASX 300 and BCI Minerals 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 SPASX 300 with a short position of BCI Minerals. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPASX 300 and BCI Minerals.

Diversification Opportunities for SPASX 300 and BCI Minerals

-0.23

Correlation Coefficient

SPASX 300  BCI Minerals

Very good diversification

The 3 months correlation between SPASX and BCI is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding SPASX 300 Media and BCI Minerals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BCI Minerals Limited and SPASX 300 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 SPASX 300 Media are associated (or correlated) with BCI Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BCI Minerals Limited has no effect on the direction of SPASX 300 i.e., SPASX 300 and BCI Minerals go up and down completely randomly.

Pair Corralation between SPASX 300 and BCI Minerals

Assuming the 90 days trading horizon SPASX 300 Media is expected to under-perform the BCI Minerals. But the index apears to be less risky and, when comparing its historical volatility, SPASX 300 Media is 1.97 times less risky than BCI Minerals. The index trades about -0.2 of its potential returns per unit of risk. The BCI Minerals Limited is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  24.00  in BCI Minerals Limited on January 26, 2024 and sell it today you would lose (1.00) from holding BCI Minerals Limited or give up 4.17% of portfolio value over 90 days.

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

SPASX 300 Media  vs.  BCI Minerals Limited

Pair Trading with SPASX 300 and BCI Minerals

The main advantage of trading using opposite SPASX 300 and BCI Minerals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPASX 300 position performs unexpectedly, BCI Minerals 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 BCI Minerals will offset losses from the drop in BCI Minerals' long position.

The idea behind SPASX 300 Media and BCI Minerals 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.

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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.