Correlation Between Black Widow and Magnum Goldcorp

Can any of the company-specific risk be diversified away by investing in both Black Widow and Magnum Goldcorp 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 Black Widow and Magnum Goldcorp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Black Widow Resources and Magnum Goldcorp, you can compare the effects of market volatilities on Black Widow and Magnum Goldcorp 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 Black Widow with a short position of Magnum Goldcorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Black Widow and Magnum Goldcorp.

Diversification Opportunities for Black Widow and Magnum Goldcorp

0.73

Correlation Coefficient

Black Widow  Magnum Goldcorp

Poor diversification

The 3 months correlation between Black and Magnum is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Black Widow Resources and Magnum Goldcorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magnum Goldcorp and Black Widow 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 Black Widow Resources are associated (or correlated) with Magnum Goldcorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magnum Goldcorp has no effect on the direction of Black Widow i.e., Black Widow and Magnum Goldcorp go up and down completely randomly.

Pair Corralation between Black Widow and Magnum Goldcorp

Assuming the 90 days horizon Black Widow Resources is expected to under-perform the Magnum Goldcorp. But the stock apears to be less risky and, when comparing its historical volatility, Black Widow Resources is 2.67 times less risky than Magnum Goldcorp. The stock trades about -0.22 of its potential returns per unit of risk. The Magnum Goldcorp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  6.00  in Magnum Goldcorp on September 3, 2024 and sell it today you would lose (1.00) from holding Magnum Goldcorp or give up 16.67% of portfolio value over 90 days.

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

Black Widow Resources  vs.  Magnum Goldcorp

Black Widow Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Black Widow Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Black Widow showed solid returns over the last few months and may actually be approaching a breakup point.

Magnum Goldcorp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Magnum Goldcorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Magnum Goldcorp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Black Widow and Magnum Goldcorp

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

The idea behind Black Widow Resources and Magnum Goldcorp 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .