Correlation Between Big Ridge and Orogen Royalties

Can any of the company-specific risk be diversified away by investing in both Big Ridge and Orogen Royalties 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 Orogen Royalties 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 Orogen Royalties, you can compare the effects of market volatilities on Big Ridge and Orogen Royalties 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 Orogen Royalties. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big Ridge and Orogen Royalties.

Diversification Opportunities for Big Ridge and Orogen Royalties

0.72

Correlation Coefficient

Big Ridge  Orogen Royalties

Poor diversification

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

Pair Corralation between Big Ridge and Orogen Royalties

Assuming the 90 days horizon Big Ridge Gold is expected to generate 3.43 times more return on investment than Orogen Royalties. However, Big Ridge is 3.43 times more volatile than Orogen Royalties. It trades about 0.03 of its potential returns per unit of risk. Orogen Royalties is currently generating about 0.08 per unit of risk. If you would invest  13.00  in Big Ridge Gold on October 11, 2024 and sell it today you would lose (6.30) from holding Big Ridge Gold or give up 48.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Big Ridge Gold  vs.  Orogen Royalties

Big Ridge Gold

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Big Ridge Gold are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Big Ridge reported solid returns over the last few months and may actually be approaching a breakup point.

Orogen Royalties

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orogen Royalties has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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 Orogen Royalties

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

The idea behind Big Ridge Gold and Orogen Royalties 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.