Correlation Between Iron Road and Red Hill
Can any of the company-specific risk be diversified away by investing in both Iron Road 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 Iron Road and Red Hill into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Iron Road and Red Hill Iron, you can compare the effects of market volatilities on Iron Road 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 Iron Road with a short position of Red Hill. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iron Road and Red Hill.
Diversification Opportunities for Iron Road and Red Hill
Very weak diversification
The 3 months correlation between Iron and Red is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Iron Road 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 Iron Road 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 Iron Road 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 Iron Road i.e., Iron Road and Red Hill go up and down completely randomly.
Pair Corralation between Iron Road and Red Hill
Assuming the 90 days trading horizon Iron Road is expected to under-perform the Red Hill. In addition to that, Iron Road is 1.29 times more volatile than Red Hill Iron. It trades about -0.03 of its total potential returns per unit of risk. Red Hill Iron is currently generating about 0.02 per unit of volatility. If you would invest 316.00 in Red Hill Iron on November 27, 2024 and sell it today you would earn a total of 34.00 from holding Red Hill Iron or generate 10.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Iron Road vs. Red Hill Iron
Performance |
| Timeline |
| Iron Road |
| Red Hill Iron |
Iron Road and Red Hill Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Iron Road and Red Hill
The main advantage of trading using opposite Iron Road and Red Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iron Road 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.| Iron Road vs. Northern Star Resources | Iron Road vs. Alcoa Inc | Iron Road vs. Evolution Mining | Iron Road vs. Bluescope Steel |
| Red Hill vs. Saferoads Holdings | Red Hill vs. Galena Mining | Red Hill vs. Gateway Mining | Red Hill vs. Globe Metals Mining |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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