Correlation Between Eastern Platinum and Chesapeake Gold

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

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

Diversification Opportunities for Eastern Platinum and Chesapeake Gold

0.07

Correlation Coefficient

Eastern Platinum  Chesapeake Gold

Significant diversification

The 3 months correlation between Eastern and Chesapeake is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Platinum Limited and Chesapeake Gold Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Gold Corp and Eastern Platinum 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 Eastern Platinum Limited are associated (or correlated) with Chesapeake Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chesapeake Gold Corp has no effect on the direction of Eastern Platinum i.e., Eastern Platinum and Chesapeake Gold go up and down completely randomly.

Pair Corralation between Eastern Platinum and Chesapeake Gold

Assuming the 90 days horizon Eastern Platinum is expected to generate 1.59 times less return on investment than Chesapeake Gold. But when comparing it to its historical volatility, Eastern Platinum Limited is 1.09 times less risky than Chesapeake Gold. It trades about 0.09 of its potential returns per unit of risk. Chesapeake Gold Corp is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  59.00  in Chesapeake Gold Corp on December 23, 2024 and sell it today you would earn a total of  22.00  from holding Chesapeake Gold Corp or generate 37.29% return on investment over 90 days.

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

Eastern Platinum Limited  vs.  Chesapeake Gold Corp

Eastern Platinum

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Platinum Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Eastern Platinum reported solid returns over the last few months and may actually be approaching a breakup point.

Chesapeake Gold Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Gold Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Chesapeake Gold reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eastern Platinum and Chesapeake Gold

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

The idea behind Eastern Platinum Limited and Chesapeake 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.