Correlation Between Brompton European and Sage Potash

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

By analyzing existing cross correlation between Brompton European Dividend and Sage Potash Corp, you can compare the effects of market volatilities on Brompton European and Sage Potash 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 Brompton European with a short position of Sage Potash. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brompton European and Sage Potash.

Diversification Opportunities for Brompton European and Sage Potash

0.35

Correlation Coefficient

Brompton European  Sage Potash

Weak diversification

The 3 months correlation between Brompton and Sage is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Brompton European Dividend and Sage Potash Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sage Potash Corp and Brompton European 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 Brompton European Dividend are associated (or correlated) with Sage Potash. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sage Potash Corp has no effect on the direction of Brompton European i.e., Brompton European and Sage Potash go up and down completely randomly.

Pair Corralation between Brompton European and Sage Potash

Assuming the 90 days trading horizon Brompton European is expected to generate 4.36 times less return on investment than Sage Potash. But when comparing it to its historical volatility, Brompton European Dividend is 6.92 times less risky than Sage Potash. It trades about 0.11 of its potential returns per unit of risk. Sage Potash Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  23.00  in Sage Potash Corp on December 30, 2024 and sell it today you would earn a total of  4.00  from holding Sage Potash Corp or generate 17.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Brompton European Dividend  vs.  Sage Potash Corp

Brompton European

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brompton European Dividend are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Brompton European may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Sage Potash Corp

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sage Potash Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Sage Potash showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Brompton European and Sage Potash

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

The idea behind Brompton European Dividend and Sage Potash 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.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.