Correlation Between Flying Nickel and Bushveld Minerals
Can any of the company-specific risk be diversified away by investing in both Flying Nickel and Bushveld Minerals 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 Flying Nickel and Bushveld Minerals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Flying Nickel Mining and Bushveld Minerals Limited, you can compare the effects of market volatilities on Flying Nickel and Bushveld Minerals 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 Flying Nickel with a short position of Bushveld Minerals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Flying Nickel and Bushveld Minerals.
Diversification Opportunities for Flying Nickel and Bushveld Minerals
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Flying and Bushveld is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Flying Nickel Mining and Bushveld Minerals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bushveld Minerals and Flying Nickel 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 Flying Nickel Mining are associated (or correlated) with Bushveld Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bushveld Minerals has no effect on the direction of Flying Nickel i.e., Flying Nickel and Bushveld Minerals go up and down completely randomly.
Pair Corralation between Flying Nickel and Bushveld Minerals
Assuming the 90 days horizon Flying Nickel is expected to generate 44.87 times less return on investment than Bushveld Minerals. But when comparing it to its historical volatility, Flying Nickel Mining is 13.78 times less risky than Bushveld Minerals. It trades about 0.11 of its potential returns per unit of risk. Bushveld Minerals Limited is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest 0.50 in Bushveld Minerals Limited on August 28, 2024 and sell it today you would earn a total of 0.50 from holding Bushveld Minerals Limited or generate 100.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Flying Nickel Mining vs. Bushveld Minerals Limited
Performance |
| Timeline |
| Flying Nickel Mining |
| Bushveld Minerals |
Flying Nickel and Bushveld Minerals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Flying Nickel and Bushveld Minerals
The main advantage of trading using opposite Flying Nickel and Bushveld Minerals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Flying Nickel position performs unexpectedly, Bushveld Minerals 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 Bushveld Minerals will offset losses from the drop in Bushveld Minerals' long position.The idea behind Flying Nickel Mining and Bushveld Minerals Limited 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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