Can any of the company-specific risk be diversified away by investing in both Western Investment and Titan 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 Western Investment and Titan Mining into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Investment and Titan Mining Corp, you can compare the effects of market volatilities on Western Investment and Titan 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 Western Investment with a short position of Titan Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Investment and Titan Mining.
Diversification Opportunities for Western Investment and Titan Mining
The 3 months correlation between Western and Titan is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Western Investment and Titan Mining Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Titan Mining Corp and Western Investment 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 Western Investment are associated (or correlated) with Titan Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Titan Mining Corp has no effect on the direction of Western Investment i.e., Western Investment and Titan Mining go up and down completely randomly.
Pair Corralation between Western Investment and Titan Mining
Given the investment horizon of 90 days Western Investment is expected to generate 0.66 times more return on investment than Titan Mining. However, Western Investment is 1.53 times less risky than Titan Mining. It trades about 0.12 of its potential returns per unit of risk. Titan Mining Corp is currently generating about -0.06 per unit of risk. If you would invest 40.00 in Western Investment on September 7, 2023 and sell it today you would earn a total of 2.00 from holding Western Investment or generate 5.0% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Western Investment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Western Investment may actually be approaching a critical reversion point that can send shares even higher in January 2024.
Compared to the overall equity markets, risk-adjusted returns on investments in Titan Mining Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Titan Mining is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the insiders.
Western Investment and Titan Mining Volatility Contrast
Predicted Return Density
Pair Trading with Western Investment and Titan Mining
The main advantage of trading using opposite Western Investment and Titan Mining positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Investment position performs unexpectedly, Titan 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 Titan Mining will offset losses from the drop in Titan Mining's long position.
The idea behind Western Investment and Titan Mining Corp 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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