Correlation Between Labrador Iron and Rocky Mountain
Can any of the company-specific risk be diversified away by investing in both Labrador Iron and Rocky Mountain 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 Labrador Iron and Rocky Mountain into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Labrador Iron Ore and Rocky Mountain Liquor, you can compare the effects of market volatilities on Labrador Iron and Rocky Mountain 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 Labrador Iron with a short position of Rocky Mountain. Check out your portfolio center. Please also check ongoing floating volatility patterns of Labrador Iron and Rocky Mountain.
Diversification Opportunities for Labrador Iron and Rocky Mountain
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Labrador and Rocky is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Labrador Iron Ore and Rocky Mountain Liquor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocky Mountain Liquor and Labrador Iron 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 Labrador Iron Ore are associated (or correlated) with Rocky Mountain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rocky Mountain Liquor has no effect on the direction of Labrador Iron i.e., Labrador Iron and Rocky Mountain go up and down completely randomly.
Pair Corralation between Labrador Iron and Rocky Mountain
Assuming the 90 days trading horizon Labrador Iron is expected to generate 2.87 times less return on investment than Rocky Mountain. But when comparing it to its historical volatility, Labrador Iron Ore is 3.9 times less risky than Rocky Mountain. It trades about 0.05 of its potential returns per unit of risk. Rocky Mountain Liquor is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 12.00 in Rocky Mountain Liquor on September 3, 2024 and sell it today you would earn a total of 1.00 from holding Rocky Mountain Liquor or generate 8.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Labrador Iron Ore vs. Rocky Mountain Liquor
Performance |
| Timeline |
| Labrador Iron Ore |
| Rocky Mountain Liquor |
Labrador Iron and Rocky Mountain Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Labrador Iron and Rocky Mountain
The main advantage of trading using opposite Labrador Iron and Rocky Mountain positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Labrador Iron position performs unexpectedly, Rocky Mountain 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 Rocky Mountain will offset losses from the drop in Rocky Mountain's long position.| Labrador Iron vs. Keyera Corp | Labrador Iron vs. Russel Metals | Labrador Iron vs. Freehold Royalties | Labrador Iron vs. Capital Power |
| Rocky Mountain vs. High Liner Foods | Rocky Mountain vs. Richelieu Hardware | Rocky Mountain vs. International Zeolite Corp | Rocky Mountain vs. European Residential Real |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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