Can any of the company-specific risk be diversified away by investing in both CHAR Technologies and Silver Wolf 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 CHAR Technologies and Silver Wolf into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CHAR Technologies and Silver Wolf Exploration, you can compare the effects of market volatilities on CHAR Technologies and Silver Wolf 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 CHAR Technologies with a short position of Silver Wolf. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHAR Technologies and Silver Wolf.
Diversification Opportunities for CHAR Technologies and Silver Wolf
The 3 months correlation between CHAR and Silver is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding CHAR Technologies and Silver Wolf Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silver Wolf Exploration and CHAR Technologies 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 CHAR Technologies are associated (or correlated) with Silver Wolf. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silver Wolf Exploration has no effect on the direction of CHAR Technologies i.e., CHAR Technologies and Silver Wolf go up and down completely randomly.
Pair Corralation between CHAR Technologies and Silver Wolf
Assuming the 90 days horizon CHAR Technologies is expected to under-perform the Silver Wolf. But the stock apears to be less risky and, when comparing its historical volatility, CHAR Technologies is 2.36 times less risky than Silver Wolf. The stock trades about -0.09 of its potential returns per unit of risk. The Silver Wolf Exploration is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 9.00 in Silver Wolf Exploration on September 3, 2023 and sell it today you would earn a total of 0.50 from holding Silver Wolf Exploration or generate 5.56% return on investment over 90 days.
Over the last 90 days CHAR Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Silver Wolf Exploration are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating essential indicators, Silver Wolf showed solid returns over the last few months and may actually be approaching a breakup point.
CHAR Technologies and Silver Wolf Volatility Contrast
Predicted Return Density
Pair Trading with CHAR Technologies and Silver Wolf
The main advantage of trading using opposite CHAR Technologies and Silver Wolf positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHAR Technologies position performs unexpectedly, Silver Wolf 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 Silver Wolf will offset losses from the drop in Silver Wolf's long position.
The idea behind CHAR Technologies and Silver Wolf Exploration 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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