Correlation Between Danakali and Intrepid Potash

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

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

Diversification Opportunities for Danakali and Intrepid Potash

0.16

Correlation Coefficient

Danakali  Intrepid Potash

Average diversification

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

Pair Corralation between Danakali and Intrepid Potash

Assuming the 90 days horizon Danakali is expected to generate 2.92 times more return on investment than Intrepid Potash. However, Danakali is 2.92 times more volatile than Intrepid Potash. It trades about 0.03 of its potential returns per unit of risk. Intrepid Potash is currently generating about -0.1 per unit of risk. If you would invest  21.00  in Danakali on February 2, 2024 and sell it today you would earn a total of  0.00  from holding Danakali or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	90.91%
Values	Daily Returns

Danakali  vs.  Intrepid Potash

Danakali

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Danakali are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Danakali reported solid returns over the last few months and may actually be approaching a breakup point.

Intrepid Potash

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Intrepid Potash are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, Intrepid Potash may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Danakali and Intrepid Potash

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

The idea behind Danakali and Intrepid Potash 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.