Correlation Between Big Ridge and Northern Superior

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

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

Diversification Opportunities for Big Ridge and Northern Superior

0.46

Correlation Coefficient

Big Ridge  Northern Superior

Very weak diversification

The 3 months correlation between Big and Northern is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Big Ridge Gold and Northern Superior Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Superior and Big Ridge 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 Big Ridge Gold are associated (or correlated) with Northern Superior. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Superior has no effect on the direction of Big Ridge i.e., Big Ridge and Northern Superior go up and down completely randomly.

Pair Corralation between Big Ridge and Northern Superior

Assuming the 90 days horizon Big Ridge Gold is expected to under-perform the Northern Superior. But the otc stock apears to be less risky and, when comparing its historical volatility, Big Ridge Gold is 1.43 times less risky than Northern Superior. The otc stock trades about -0.15 of its potential returns per unit of risk. The Northern Superior Resources is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  34.00  in Northern Superior Resources on November 28, 2024 and sell it today you would lose (2.00) from holding Northern Superior Resources or give up 5.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Big Ridge Gold  vs.  Northern Superior Resources

Big Ridge Gold

Risk-Adjusted Performance

Very Weak

Over the last 90 days Big Ridge Gold has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Big Ridge is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Northern Superior

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northern Superior Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Big Ridge and Northern Superior

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

The idea behind Big Ridge Gold and Northern Superior Resources 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.