Can any of the company-specific risk be diversified away by investing in both Tymbal Resources and Magna Mining 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 Tymbal Resources and Magna Mining into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tymbal Resources and Magna Mining, you can compare the effects of market volatilities on Tymbal Resources and Magna Mining 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 Tymbal Resources with a short position of Magna Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tymbal Resources and Magna Mining.
Diversification Opportunities for Tymbal Resources and Magna Mining
The 3 months correlation between Tymbal and Magna is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Tymbal Resources and Magna Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magna Mining and Tymbal 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 Tymbal Resources are associated (or correlated) with Magna Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magna Mining has no effect on the direction of Tymbal Resources i.e., Tymbal Resources and Magna Mining go up and down completely randomly.
Pair Corralation between Tymbal Resources and Magna Mining
Assuming the 90 days trading horizon Tymbal Resources is not expected to generate positive returns. Moreover, Tymbal Resources is 1.5 times more volatile than Magna Mining. It trades away all of its potential returns to assume current level of volatility. Magna Mining is currently generating about 0.03 per unit of risk. If you would invest 40.00 in Magna Mining on August 31, 2023 and sell it today you would earn a total of 5.00 from holding Magna Mining or generate 12.5% return on investment over 90 days.
Over the last 90 days Tymbal Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's primary indicators remain fairly stable which may send shares a bit higher in December 2023. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.
Over the last 90 days Magna Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain fairly stable which may send shares a bit higher in December 2023. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.
Tymbal Resources and Magna Mining Volatility Contrast
Predicted Return Density
Pair Trading with Tymbal Resources and Magna Mining
The main advantage of trading using opposite Tymbal Resources and Magna Mining positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tymbal Resources position performs unexpectedly, Magna Mining 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 Magna Mining will offset losses from the drop in Magna Mining's long position.
The idea behind Tymbal Resources and Magna Mining 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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