Correlation Between Maple Leaf and Labrador Iron

Can any of the company-specific risk be diversified away by investing in both Maple Leaf and Labrador Iron 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 Maple Leaf and Labrador Iron into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Maple Leaf Foods and Labrador Iron Ore, you can compare the effects of market volatilities on Maple Leaf and Labrador Iron 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 Maple Leaf with a short position of Labrador Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Maple Leaf and Labrador Iron.

Diversification Opportunities for Maple Leaf and Labrador Iron

0.73

Correlation Coefficient

Maple Leaf  Labrador Iron

Poor diversification

The 3 months correlation between Maple and Labrador is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Maple Leaf Foods and Labrador Iron Ore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Labrador Iron Ore and Maple Leaf 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 Maple Leaf Foods are associated (or correlated) with Labrador Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Labrador Iron Ore has no effect on the direction of Maple Leaf i.e., Maple Leaf and Labrador Iron go up and down completely randomly.

Pair Corralation between Maple Leaf and Labrador Iron

Assuming the 90 days trading horizon Maple Leaf Foods is expected to generate 1.78 times more return on investment than Labrador Iron. However, Maple Leaf is 1.78 times more volatile than Labrador Iron Ore. It trades about 0.22 of its potential returns per unit of risk. Labrador Iron Ore is currently generating about 0.27 per unit of risk. If you would invest  2,241  in Maple Leaf Foods on January 29, 2024 and sell it today you would earn a total of  188.00  from holding Maple Leaf Foods or generate 8.39% return on investment over 90 days.

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

Maple Leaf Foods  vs.  Labrador Iron Ore

Maple Leaf Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Maple Leaf Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Maple Leaf is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Labrador Iron Ore

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Labrador Iron Ore has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Maple Leaf and Labrador Iron

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

The idea behind Maple Leaf Foods and Labrador Iron Ore 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..