Correlation Between American West and Hawsons Iron
Can any of the company-specific risk be diversified away by investing in both American West and Hawsons Iron 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 American West and Hawsons Iron into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American West Metals and Hawsons Iron, you can compare the effects of market volatilities on American West and Hawsons Iron 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 American West with a short position of Hawsons Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of American West and Hawsons Iron.
Diversification Opportunities for American West and Hawsons Iron
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between American and Hawsons is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding American West Metals and Hawsons Iron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hawsons Iron and American West 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 American West Metals are associated (or correlated) with Hawsons Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hawsons Iron has no effect on the direction of American West i.e., American West and Hawsons Iron go up and down completely randomly.
Pair Corralation between American West and Hawsons Iron
Assuming the 90 days trading horizon American West Metals is expected to under-perform the Hawsons Iron. But the stock apears to be less risky and, when comparing its historical volatility, American West Metals is 1.34 times less risky than Hawsons Iron. The stock trades about -0.34 of its potential returns per unit of risk. The Hawsons Iron is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 2.10 in Hawsons Iron on August 29, 2024 and sell it today you would lose (0.10) from holding Hawsons Iron or give up 4.76% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American West Metals vs. Hawsons Iron
Performance |
| Timeline |
| American West Metals |
| Hawsons Iron |
American West and Hawsons Iron Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American West and Hawsons Iron
The main advantage of trading using opposite American West and Hawsons Iron positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American West position performs unexpectedly, Hawsons Iron 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 Hawsons Iron will offset losses from the drop in Hawsons Iron's long position.| American West vs. Northern Star Resources | American West vs. Evolution Mining | American West vs. Bluescope Steel | American West vs. Sandfire Resources NL |
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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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