Correlation Between Decade Resources and First American

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

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

Diversification Opportunities for Decade Resources and First American

0.0

Correlation Coefficient

Decade Resources  First American

Pay attention - limited upside

The 3 months correlation between Decade and First is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Decade Resources and First American Silver in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First American Silver and Decade Resources 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 Decade Resources are associated (or correlated) with First American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First American Silver has no effect on the direction of Decade Resources i.e., Decade Resources and First American go up and down completely randomly.

Pair Corralation between Decade Resources and First American

Assuming the 90 days horizon Decade Resources is expected to generate 2.32 times less return on investment than First American. But when comparing it to its historical volatility, Decade Resources is 2.33 times less risky than First American. It trades about 0.06 of its potential returns per unit of risk. First American Silver is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3.10  in First American Silver on February 26, 2024 and sell it today you would lose (3.09) from holding First American Silver or give up 99.68% of portfolio value over 90 days.

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

Decade Resources  vs.  First American Silver

Decade Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Decade Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

First American Silver

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First American Silver has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, First American is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Decade Resources and First American

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

The idea behind Decade Resources and First American Silver 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.