Correlation Between Defiance Silver and HudBay Minerals

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

By analyzing existing cross correlation between Defiance Silver Corp and HudBay Minerals, you can compare the effects of market volatilities on Defiance Silver and HudBay Minerals 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 Defiance Silver with a short position of HudBay Minerals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Defiance Silver and HudBay Minerals.

Diversification Opportunities for Defiance Silver and HudBay Minerals

0.7

Correlation Coefficient

Defiance Silver  HudBay Minerals

Poor diversification

The 3 months correlation between Defiance and HudBay is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Defiance Silver Corp and HudBay Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HudBay Minerals and Defiance Silver 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 Defiance Silver Corp are associated (or correlated) with HudBay Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HudBay Minerals has no effect on the direction of Defiance Silver i.e., Defiance Silver and HudBay Minerals go up and down completely randomly.

Pair Corralation between Defiance Silver and HudBay Minerals

Assuming the 90 days horizon Defiance Silver Corp is expected to under-perform the HudBay Minerals. In addition to that, Defiance Silver is 2.45 times more volatile than HudBay Minerals. It trades about -0.03 of its total potential returns per unit of risk. HudBay Minerals is currently generating about -0.02 per unit of volatility. If you would invest  1,253  in HudBay Minerals on October 5, 2024 and sell it today you would lose (27.00) from holding HudBay Minerals or give up 2.15% of portfolio value over 90 days.

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

Defiance Silver Corp  vs.  HudBay Minerals

Defiance Silver Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

HudBay Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Defiance Silver and HudBay Minerals

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

The idea behind Defiance Silver Corp and HudBay Minerals 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.