Correlation Between Canadian Spirit and Sage Potash

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

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

Diversification Opportunities for Canadian Spirit and Sage Potash

-0.16

Correlation Coefficient

Canadian Spirit  Sage Potash

Good diversification

The 3 months correlation between Canadian and Sage is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Spirit Resources and Sage Potash Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sage Potash Corp and Canadian Spirit 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 Canadian Spirit Resources are associated (or correlated) with Sage Potash. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sage Potash Corp has no effect on the direction of Canadian Spirit i.e., Canadian Spirit and Sage Potash go up and down completely randomly.

Pair Corralation between Canadian Spirit and Sage Potash

Assuming the 90 days horizon Canadian Spirit Resources is expected to generate 0.75 times more return on investment than Sage Potash. However, Canadian Spirit Resources is 1.34 times less risky than Sage Potash. It trades about 0.01 of its potential returns per unit of risk. Sage Potash Corp is currently generating about -0.01 per unit of risk. If you would invest  12.00  in Canadian Spirit Resources on February 26, 2024 and sell it today you would lose (6.00) from holding Canadian Spirit Resources or give up 50.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	60.0%
Values	Daily Returns

Canadian Spirit Resources  vs.  Sage Potash Corp

Canadian Spirit Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian Spirit Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Canadian Spirit is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Sage Potash Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sage Potash Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical and fundamental indicators, Sage Potash showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Spirit and Sage Potash

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

The idea behind Canadian Spirit Resources and Sage Potash 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.