Correlation Between Clean Air and Big Ridge

Can any of the company-specific risk be diversified away by investing in both Clean Air and Big Ridge 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 Clean Air and Big Ridge into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Clean Air Metals and Big Ridge Gold, you can compare the effects of market volatilities on Clean Air and Big Ridge 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 Clean Air with a short position of Big Ridge. Check out your portfolio center. Please also check ongoing floating volatility patterns of Clean Air and Big Ridge.

Diversification Opportunities for Clean Air and Big Ridge

0.79

Correlation Coefficient

Clean Air  Big Ridge

Poor diversification

The 3 months correlation between Clean and Big is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Clean Air Metals and Big Ridge Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big Ridge Gold and Clean Air 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 Clean Air Metals are associated (or correlated) with Big Ridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big Ridge Gold has no effect on the direction of Clean Air i.e., Clean Air and Big Ridge go up and down completely randomly.

Pair Corralation between Clean Air and Big Ridge

Assuming the 90 days horizon Clean Air is expected to generate 1.61 times less return on investment than Big Ridge. But when comparing it to its historical volatility, Clean Air Metals is 1.27 times less risky than Big Ridge. It trades about 0.02 of its potential returns per unit of risk. Big Ridge Gold is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  9.00  in Big Ridge Gold on October 22, 2024 and sell it today you would earn a total of  0.00  from holding Big Ridge Gold or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Clean Air Metals  vs.  Big Ridge Gold

Clean Air Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clean Air Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Big Ridge Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Big Ridge Gold has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Clean Air and Big Ridge

The main advantage of trading using opposite Clean Air and Big Ridge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Clean Air position performs unexpectedly, Big Ridge 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 Big Ridge will offset losses from the drop in Big Ridge's long position.

The idea behind Clean Air Metals and Big Ridge Gold 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.