Correlation Between Hercules Metals and Pacific Ridge

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

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

Diversification Opportunities for Hercules Metals and Pacific Ridge

0.12

Correlation Coefficient

Hercules Metals  Pacific Ridge

Average diversification

The 3 months correlation between Hercules and Pacific is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Hercules Metals Corp and Pacific Ridge Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Ridge Exploration and Hercules Metals 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 Hercules Metals Corp are associated (or correlated) with Pacific Ridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Ridge Exploration has no effect on the direction of Hercules Metals i.e., Hercules Metals and Pacific Ridge go up and down completely randomly.

Pair Corralation between Hercules Metals and Pacific Ridge

Assuming the 90 days horizon Hercules Metals is expected to generate 66.14 times less return on investment than Pacific Ridge. But when comparing it to its historical volatility, Hercules Metals Corp is 4.34 times less risky than Pacific Ridge. It trades about 0.0 of its potential returns per unit of risk. Pacific Ridge Exploration is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4.00  in Pacific Ridge Exploration on October 12, 2024 and sell it today you would lose (2.00) from holding Pacific Ridge Exploration or give up 50.0% of portfolio value over 90 days.

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

Hercules Metals Corp  vs.  Pacific Ridge Exploration

Hercules Metals Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hercules Metals Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Hercules Metals is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pacific Ridge Exploration

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific Ridge Exploration are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Pacific Ridge showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hercules Metals and Pacific Ridge

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

The idea behind Hercules Metals Corp and Pacific Ridge Exploration 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.