Correlation Between Champion Iron and DIRTT Environmental

Can any of the company-specific risk be diversified away by investing in both Champion Iron and DIRTT Environmental 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 Champion Iron and DIRTT Environmental into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Champion Iron and DIRTT Environmental Solutions, you can compare the effects of market volatilities on Champion Iron and DIRTT Environmental 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 Champion Iron with a short position of DIRTT Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Champion Iron and DIRTT Environmental.

Diversification Opportunities for Champion Iron and DIRTT Environmental

-0.6

Correlation Coefficient

Champion Iron  DIRTT Environmental

Excellent diversification

The 3 months correlation between Champion and DIRTT is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Champion Iron and DIRTT Environmental Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DIRTT Environmental and Champion Iron 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 Champion Iron are associated (or correlated) with DIRTT Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DIRTT Environmental has no effect on the direction of Champion Iron i.e., Champion Iron and DIRTT Environmental go up and down completely randomly.

Pair Corralation between Champion Iron and DIRTT Environmental

Assuming the 90 days trading horizon Champion Iron is expected to under-perform the DIRTT Environmental. But the stock apears to be less risky and, when comparing its historical volatility, Champion Iron is 1.66 times less risky than DIRTT Environmental. The stock trades about -0.01 of its potential returns per unit of risk. The DIRTT Environmental Solutions is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  59.00  in DIRTT Environmental Solutions on September 23, 2024 and sell it today you would earn a total of  31.00  from holding DIRTT Environmental Solutions or generate 52.54% return on investment over 90 days.

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

Champion Iron  vs.  DIRTT Environmental Solutions

Champion Iron

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Champion Iron has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Champion Iron is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

DIRTT Environmental

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DIRTT Environmental Solutions are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, DIRTT Environmental displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Champion Iron and DIRTT Environmental

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

The idea behind Champion Iron and DIRTT Environmental Solutions 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.