Correlation Between Clean Air and P2 Gold

Can any of the company-specific risk be diversified away by investing in both Clean Air and P2 Gold 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 Clean Air and P2 Gold into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Clean Air Metals and P2 Gold, you can compare the effects of market volatilities on Clean Air and P2 Gold 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 Clean Air with a short position of P2 Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Clean Air and P2 Gold.

Diversification Opportunities for Clean Air and P2 Gold

0.63

Correlation Coefficient

Clean Air  P2 Gold

Poor diversification

The 3 months correlation between Clean and PGLDF is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Clean Air Metals and P2 Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on P2 Gold and Clean Air 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 Clean Air Metals are associated (or correlated) with P2 Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of P2 Gold has no effect on the direction of Clean Air i.e., Clean Air and P2 Gold go up and down completely randomly.

Pair Corralation between Clean Air and P2 Gold

Assuming the 90 days horizon Clean Air Metals is expected to generate 1.22 times more return on investment than P2 Gold. However, Clean Air is 1.22 times more volatile than P2 Gold. It trades about -0.03 of its potential returns per unit of risk. P2 Gold is currently generating about -0.07 per unit of risk. If you would invest  4.20  in Clean Air Metals on September 13, 2024 and sell it today you would lose (0.27) from holding Clean Air Metals or give up 6.43% of portfolio value over 90 days.

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

Clean Air Metals  vs.  P2 Gold

Clean Air Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clean Air Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

P2 Gold

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in P2 Gold are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, P2 Gold reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Clean Air and P2 Gold

The main advantage of trading using opposite Clean Air and P2 Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Clean Air position performs unexpectedly, P2 Gold 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 P2 Gold will offset losses from the drop in P2 Gold's long position.

The idea behind Clean Air Metals and P2 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.