Correlation Between American West and Red Hill
Can any of the company-specific risk be diversified away by investing in both American West and Red Hill 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 Red Hill 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 Red Hill Iron, you can compare the effects of market volatilities on American West and Red Hill 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 Red Hill. Check out your portfolio center. Please also check ongoing floating volatility patterns of American West and Red Hill.
Diversification Opportunities for American West and Red Hill
-0.7 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between American and Red is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding American West Metals and Red Hill Iron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Hill 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 Red Hill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Hill Iron has no effect on the direction of American West i.e., American West and Red Hill go up and down completely randomly.
Pair Corralation between American West and Red Hill
Assuming the 90 days trading horizon American West Metals is expected to under-perform the Red Hill. In addition to that, American West is 1.21 times more volatile than Red Hill Iron. It trades about -0.34 of its total potential returns per unit of risk. Red Hill Iron is currently generating about 0.21 per unit of volatility. If you would invest 395.00 in Red Hill Iron on August 29, 2024 and sell it today you would earn a total of 45.00 from holding Red Hill Iron or generate 11.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American West Metals vs. Red Hill Iron
Performance |
| Timeline |
| American West Metals |
| Red Hill Iron |
American West and Red Hill Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American West and Red Hill
The main advantage of trading using opposite American West and Red Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American West position performs unexpectedly, Red Hill 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 Red Hill will offset losses from the drop in Red Hill'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 |
| Red Hill vs. Northern Star Resources | Red Hill vs. Evolution Mining | Red Hill vs. Bluescope Steel | Red Hill vs. Sandfire Resources NL |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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