Correlation Between South32 and Northern Graphite
Can any of the company-specific risk be diversified away by investing in both South32 and Northern Graphite 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 South32 and Northern Graphite into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between South32 Limited and Northern Graphite, you can compare the effects of market volatilities on South32 and Northern Graphite 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 South32 with a short position of Northern Graphite. Check out your portfolio center. Please also check ongoing floating volatility patterns of South32 and Northern Graphite.
Diversification Opportunities for South32 and Northern Graphite
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between South32 and Northern is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding South32 Limited and Northern Graphite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Graphite and South32 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 South32 Limited are associated (or correlated) with Northern Graphite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Graphite has no effect on the direction of South32 i.e., South32 and Northern Graphite go up and down completely randomly.
Pair Corralation between South32 and Northern Graphite
Assuming the 90 days horizon South32 Limited is expected to under-perform the Northern Graphite. But the pink sheet apears to be less risky and, when comparing its historical volatility, South32 Limited is 5.51 times less risky than Northern Graphite. The pink sheet trades about -0.1 of its potential returns per unit of risk. The Northern Graphite is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 5.50 in Northern Graphite on September 3, 2024 and sell it today you would earn a total of 0.30 from holding Northern Graphite or generate 5.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
South32 Limited vs. Northern Graphite
Performance |
| Timeline |
| South32 Limited |
| Northern Graphite |
South32 and Northern Graphite Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with South32 and Northern Graphite
The main advantage of trading using opposite South32 and Northern Graphite positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if South32 position performs unexpectedly, Northern Graphite 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 Northern Graphite will offset losses from the drop in Northern Graphite's long position.| South32 vs. IGO Limited | South32 vs. Anglo American PLC | South32 vs. TNG Limited | South32 vs. Amarc Resources |
| Northern Graphite vs. Focus Graphite | Northern Graphite vs. Mason Graphite | Northern Graphite vs. Graphite One | Northern Graphite vs. Syrah Resources Limited |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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