Correlation Between Blue Star and West Red

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

Diversification Opportunities for Blue Star and West Red

0.65

Correlation Coefficient

Blue Star  West Red

Poor diversification

The 3 months correlation between Blue and West is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Blue Star Gold and West Red Lake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Red Lake 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 West Red. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Red Lake has no effect on the direction of Blue Star i.e., Blue Star and West Red go up and down completely randomly.

Pair Corralation between Blue Star and West Red

Assuming the 90 days horizon Blue Star Gold is expected to under-perform the West Red. In addition to that, Blue Star is 2.12 times more volatile than West Red Lake. It trades about -0.06 of its total potential returns per unit of risk. West Red Lake is currently generating about 0.05 per unit of volatility. If you would invest  40.00  in West Red Lake on October 7, 2024 and sell it today you would earn a total of  1.00  from holding West Red Lake or generate 2.5% return on investment over 90 days.

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

Blue Star Gold  vs.  West Red Lake

Blue Star Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Blue Star Gold has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

West Red Lake

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days West Red Lake has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Blue Star and West Red

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

The idea behind Blue Star Gold and West Red Lake 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.