Correlation Between Labrador Iron and Tree Island
Can any of the company-specific risk be diversified away by investing in both Labrador Iron and Tree Island 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 Tree Island 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 Tree Island Steel, you can compare the effects of market volatilities on Labrador Iron and Tree Island 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 Tree Island. Check out your portfolio center. Please also check ongoing floating volatility patterns of Labrador Iron and Tree Island.
Diversification Opportunities for Labrador Iron and Tree Island
0.24 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Labrador and Tree is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Labrador Iron Ore and Tree Island Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tree Island Steel 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 Tree Island. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tree Island Steel has no effect on the direction of Labrador Iron i.e., Labrador Iron and Tree Island go up and down completely randomly.
Pair Corralation between Labrador Iron and Tree Island
Assuming the 90 days trading horizon Labrador Iron Ore is expected to under-perform the Tree Island. But the stock apears to be less risky and, when comparing its historical volatility, Labrador Iron Ore is 2.68 times less risky than Tree Island. The stock trades about -0.24 of its potential returns per unit of risk. The Tree Island Steel is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 286.00 in Tree Island Steel on August 29, 2024 and sell it today you would earn a total of 12.00 from holding Tree Island Steel or generate 4.2% 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. Tree Island Steel
Performance |
| Timeline |
| Labrador Iron Ore |
| Tree Island Steel |
Labrador Iron and Tree Island Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Labrador Iron and Tree Island
The main advantage of trading using opposite Labrador Iron and Tree Island positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Labrador Iron position performs unexpectedly, Tree Island 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 Tree Island will offset losses from the drop in Tree Island's long position.The idea behind Labrador Iron Ore and Tree Island Steel 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
Other Complementary Tools
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| Top Crypto Exchanges Search and analyze digital assets across top global cryptocurrency exchanges | |
| Headlines Timeline Stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity | |
| Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account | |
| FinTech Suite Use AI to screen and filter profitable investment opportunities |