Correlation Between Class III and Platinum

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

By analyzing existing cross correlation between Class III Milk and Platinum, you can compare the effects of market volatilities on Class III and Platinum 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 Class III with a short position of Platinum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Class III and Platinum.

Diversification Opportunities for Class III and Platinum

0.03

Correlation Coefficient

Class III  Platinum

Significant diversification

The 3 months correlation between Class and Platinum is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Class III Milk and Platinum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Platinum and Class III 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 Class III Milk are associated (or correlated) with Platinum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Platinum has no effect on the direction of Class III i.e., Class III and Platinum go up and down completely randomly.

Pair Corralation between Class III and Platinum

Assuming the 90 days horizon Class III is expected to generate 9.74 times less return on investment than Platinum. In addition to that, Class III is 1.17 times more volatile than Platinum. It trades about 0.0 of its total potential returns per unit of risk. Platinum is currently generating about 0.04 per unit of volatility. If you would invest  94,890  in Platinum on December 22, 2024 and sell it today you would earn a total of  2,950  from holding Platinum or generate 3.11% return on investment over 90 days.

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

Class III Milk  vs.  Platinum

Class III Milk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Class III Milk has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Class III is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Platinum

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Platinum are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Platinum is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Class III and Platinum

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

The idea behind Class III Milk and Platinum 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.