Correlation Between Defense Metals and Outcrop Gold

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

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

Diversification Opportunities for Defense Metals and Outcrop Gold

-0.58

Correlation Coefficient

Defense Metals  Outcrop Gold

Excellent diversification

The 3 months correlation between Defense and Outcrop is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Defense Metals Corp and Outcrop Gold Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Outcrop Gold Corp and Defense Metals 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 Defense Metals Corp are associated (or correlated) with Outcrop Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Outcrop Gold Corp has no effect on the direction of Defense Metals i.e., Defense Metals and Outcrop Gold go up and down completely randomly.

Pair Corralation between Defense Metals and Outcrop Gold

Assuming the 90 days trading horizon Defense Metals Corp is expected to generate 1.29 times more return on investment than Outcrop Gold. However, Defense Metals is 1.29 times more volatile than Outcrop Gold Corp. It trades about 0.04 of its potential returns per unit of risk. Outcrop Gold Corp is currently generating about -0.01 per unit of risk. If you would invest  20.00  in Defense Metals Corp on October 13, 2024 and sell it today you would earn a total of  1.00  from holding Defense Metals Corp or generate 5.0% return on investment over 90 days.

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

Defense Metals Corp  vs.  Outcrop Gold Corp

Defense Metals Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Defense Metals Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Defense Metals showed solid returns over the last few months and may actually be approaching a breakup point.

Outcrop Gold Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Outcrop Gold Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Defense Metals and Outcrop Gold

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

The idea behind Defense Metals Corp and Outcrop Gold Corp 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.