Correlation Between Silver Spruce and Leading Edge

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

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

Diversification Opportunities for Silver Spruce and Leading Edge

-0.15

Correlation Coefficient

Silver Spruce  Leading Edge

Good diversification

The 3 months correlation between Silver and Leading is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Silver Spruce Resources and Leading Edge Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leading Edge Materials and Silver Spruce 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 Silver Spruce Resources are associated (or correlated) with Leading Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leading Edge Materials has no effect on the direction of Silver Spruce i.e., Silver Spruce and Leading Edge go up and down completely randomly.

Pair Corralation between Silver Spruce and Leading Edge

Assuming the 90 days horizon Silver Spruce Resources is expected to generate 2.12 times more return on investment than Leading Edge. However, Silver Spruce is 2.12 times more volatile than Leading Edge Materials. It trades about 0.08 of its potential returns per unit of risk. Leading Edge Materials is currently generating about 0.01 per unit of risk. If you would invest  0.92  in Silver Spruce Resources on February 26, 2024 and sell it today you would earn a total of  0.12  from holding Silver Spruce Resources or generate 13.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Silver Spruce Resources  vs.  Leading Edge Materials

Silver Spruce Resources

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Silver Spruce Resources are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, Silver Spruce reported solid returns over the last few months and may actually be approaching a breakup point.

Leading Edge Materials

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Leading Edge Materials are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, Leading Edge is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Silver Spruce and Leading Edge

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

The idea behind Silver Spruce Resources and Leading Edge Materials 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.