Correlation Between Northern Star and Sandfire Resources

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Can any of the company-specific risk be diversified away by investing in both Northern Star and Sandfire Resources 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 Northern Star and Sandfire Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Star Resources and Sandfire Resources NL, you can compare the effects of market volatilities on Northern Star and Sandfire Resources 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 Northern Star with a short position of Sandfire Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Star and Sandfire Resources.

Diversification Opportunities for Northern Star and Sandfire Resources

0.72
  Correlation Coefficient

Poor diversification

The 3 months correlation between Northern and Sandfire is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Northern Star Resources and Sandfire Resources NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sandfire Resources and Northern Star 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 Northern Star Resources are associated (or correlated) with Sandfire Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sandfire Resources has no effect on the direction of Northern Star i.e., Northern Star and Sandfire Resources go up and down completely randomly.

Pair Corralation between Northern Star and Sandfire Resources

Assuming the 90 days trading horizon Northern Star is expected to generate 1.6 times less return on investment than Sandfire Resources. But when comparing it to its historical volatility, Northern Star Resources is 1.12 times less risky than Sandfire Resources. It trades about 0.04 of its potential returns per unit of risk. Sandfire Resources NL is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  670.00  in Sandfire Resources NL on August 29, 2024 and sell it today you would earn a total of  347.00  from holding Sandfire Resources NL or generate 51.79% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Northern Star Resources  vs.  Sandfire Resources NL

 Performance 
       Timeline  
Northern Star Resources 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Northern Star Resources are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Northern Star unveiled solid returns over the last few months and may actually be approaching a breakup point.
Sandfire Resources 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Sandfire Resources NL are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sandfire Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Northern Star and Sandfire Resources Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Northern Star and Sandfire Resources

The main advantage of trading using opposite Northern Star and Sandfire Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Star position performs unexpectedly, Sandfire Resources 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 Sandfire Resources will offset losses from the drop in Sandfire Resources' long position.
The idea behind Northern Star Resources and Sandfire Resources NL 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.
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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.

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