Correlation Between South32 and Potash America
Can any of the company-specific risk be diversified away by investing in both South32 and Potash America 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 Potash America into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between South32 Limited and Potash America, you can compare the effects of market volatilities on South32 and Potash America 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 Potash America. Check out your portfolio center. Please also check ongoing floating volatility patterns of South32 and Potash America.
Diversification Opportunities for South32 and Potash America
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between South32 and Potash is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding South32 Limited and Potash America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Potash America 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 Potash America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Potash America has no effect on the direction of South32 i.e., South32 and Potash America go up and down completely randomly.
Pair Corralation between South32 and Potash America
Assuming the 90 days horizon South32 Limited is expected to under-perform the Potash America. But the pink sheet apears to be less risky and, when comparing its historical volatility, South32 Limited is 2.67 times less risky than Potash America. The pink sheet trades about 0.0 of its potential returns per unit of risk. The Potash America is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 0.11 in Potash America on September 2, 2024 and sell it today you would lose (0.02) from holding Potash America or give up 18.18% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.21% |
| Values | Daily Returns |
South32 Limited vs. Potash America
Performance |
| Timeline |
| South32 Limited |
| Potash America |
South32 and Potash America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with South32 and Potash America
The main advantage of trading using opposite South32 and Potash America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if South32 position performs unexpectedly, Potash America 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 Potash America will offset losses from the drop in Potash America's long position.The idea behind South32 Limited and Potash America 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.| Potash America vs. Daniels Corporate Advisory | Potash America vs. AimRite Holdings Corp | Potash America vs. Sack Lunch Productions | Potash America vs. Legends Business Grp |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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