Correlation Between Defiance Silver and Labrador Iron

Can any of the company-specific risk be diversified away by investing in both Defiance Silver and Labrador Iron 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 Labrador Iron 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 Labrador Iron Ore, you can compare the effects of market volatilities on Defiance Silver and Labrador Iron 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 Labrador Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Defiance Silver and Labrador Iron.

Diversification Opportunities for Defiance Silver and Labrador Iron

0.36

Correlation Coefficient

Defiance Silver  Labrador Iron

Weak diversification

The 3 months correlation between Defiance and Labrador is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Defiance Silver Corp and Labrador Iron Ore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Labrador Iron Ore 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 Labrador Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Labrador Iron Ore has no effect on the direction of Defiance Silver i.e., Defiance Silver and Labrador Iron go up and down completely randomly.

Pair Corralation between Defiance Silver and Labrador Iron

Assuming the 90 days horizon Defiance Silver Corp is expected to generate 6.55 times more return on investment than Labrador Iron. However, Defiance Silver is 6.55 times more volatile than Labrador Iron Ore. It trades about 0.1 of its potential returns per unit of risk. Labrador Iron Ore is currently generating about 0.07 per unit of risk. If you would invest  20.00  in Defiance Silver Corp on December 24, 2024 and sell it today you would earn a total of  7.00  from holding Defiance Silver Corp or generate 35.0% return on investment over 90 days.

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

Defiance Silver Corp  vs.  Labrador Iron Ore

Defiance Silver Corp

Risk-Adjusted Performance

OK

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

Labrador Iron Ore

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Labrador Iron Ore are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Labrador Iron 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 Labrador Iron

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

The idea behind Defiance Silver Corp and Labrador Iron Ore 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.