Correlation Between Defiance Silver and Gem Diamonds

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

Diversification Opportunities for Defiance Silver and Gem Diamonds

0.74

Correlation Coefficient

Defiance Silver  Gem Diamonds

Poor diversification

The 3 months correlation between Defiance and Gem is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Defiance Silver Corp and Gem Diamonds Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gem Diamonds Limited 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 Gem Diamonds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gem Diamonds Limited has no effect on the direction of Defiance Silver i.e., Defiance Silver and Gem Diamonds go up and down completely randomly.

Pair Corralation between Defiance Silver and Gem Diamonds

Assuming the 90 days horizon Defiance Silver is expected to generate 1.1 times less return on investment than Gem Diamonds. In addition to that, Defiance Silver is 1.52 times more volatile than Gem Diamonds Limited. It trades about 0.11 of its total potential returns per unit of risk. Gem Diamonds Limited is currently generating about 0.18 per unit of volatility. If you would invest  10.00  in Gem Diamonds Limited on December 29, 2024 and sell it today you would earn a total of  6.00  from holding Gem Diamonds Limited or generate 60.0% return on investment over 90 days.

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

Defiance Silver Corp  vs.  Gem Diamonds Limited

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. Despite nearly fragile basic indicators, Defiance Silver reported solid returns over the last few months and may actually be approaching a breakup point.

Gem Diamonds Limited

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gem Diamonds Limited are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Gem Diamonds reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Defiance Silver and Gem Diamonds

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

The idea behind Defiance Silver Corp and Gem Diamonds Limited 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.