Correlation Between Blue Star and Big Ridge

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

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

Diversification Opportunities for Blue Star and Big Ridge

-0.62

Correlation Coefficient

Blue Star  Big Ridge

Excellent diversification

The 3 months correlation between Blue and Big is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Blue Star Gold 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 Blue Star 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 Blue Star Gold 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 Blue Star i.e., Blue Star and Big Ridge go up and down completely randomly.

Pair Corralation between Blue Star and Big Ridge

Assuming the 90 days horizon Blue Star Gold is expected to generate 0.99 times more return on investment than Big Ridge. However, Blue Star Gold is 1.01 times less risky than Big Ridge. It trades about 0.25 of its potential returns per unit of risk. Big Ridge Gold is currently generating about 0.0 per unit of risk. If you would invest  3.25  in Blue Star Gold on December 27, 2024 and sell it today you would earn a total of  5.97  from holding Blue Star Gold or generate 183.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.77%
Values	Daily Returns

Blue Star Gold  vs.  Big Ridge Gold

Blue Star Gold

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Star Gold are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Blue Star reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Blue Star and Big Ridge

The main advantage of trading using opposite Blue Star and Big Ridge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Blue Star 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 Blue Star Gold 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.