Can any of the company-specific risk be diversified away by investing in both Compania and Eastfield 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 Compania and Eastfield Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Compania De Minas and Eastfield Resources, you can compare the effects of market volatilities on Compania and Eastfield 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 Compania with a short position of Eastfield Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compania and Eastfield Resources.
Diversification Opportunities for Compania and Eastfield Resources
The 3 months correlation between Compania and Eastfield is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Compania De Minas and Eastfield Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastfield Resources and Compania 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 Compania De Minas are associated (or correlated) with Eastfield Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastfield Resources has no effect on the direction of Compania i.e., Compania and Eastfield Resources go up and down completely randomly.
Pair Corralation between Compania and Eastfield Resources
Considering the 90-day investment horizon Compania De Minas is expected to generate 0.14 times more return on investment than Eastfield Resources. However, Compania De Minas is 7.31 times less risky than Eastfield Resources. It trades about 0.34 of its potential returns per unit of risk. Eastfield Resources is currently generating about -0.03 per unit of risk. If you would invest 849.00 in Compania De Minas on September 5, 2023 and sell it today you would earn a total of 109.00 from holding Compania De Minas or generate 12.84% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Compania De Minas are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Compania displayed solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in Eastfield Resources are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Eastfield Resources reported solid returns over the last few months and may actually be approaching a breakup point.
Compania and Eastfield Resources Volatility Contrast
Predicted Return Density
Pair Trading with Compania and Eastfield Resources
The main advantage of trading using opposite Compania and Eastfield Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compania position performs unexpectedly, Eastfield 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 Eastfield Resources will offset losses from the drop in Eastfield Resources' long position.
The idea behind Compania De Minas and Eastfield 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.
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
Get Piotroski F Score based on the binary analysis strategy of nine different fundamentals
Macroaxis helps investors of all levels and skills to maximize the upside of all their holdings and minimize the risk
associated with market volatility, economic swings, and company-specific events. View terms and conditions