Correlation Between European Residential and Silver Predator

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

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

Diversification Opportunities for European Residential and Silver Predator

0.41

Correlation Coefficient

European Residential  Silver Predator

Very weak diversification

The 3 months correlation between European and Silver is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding European Residential Real and Silver Predator Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silver Predator Corp and European Residential 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 European Residential Real are associated (or correlated) with Silver Predator. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silver Predator Corp has no effect on the direction of European Residential i.e., European Residential and Silver Predator go up and down completely randomly.

Pair Corralation between European Residential and Silver Predator

Assuming the 90 days trading horizon European Residential is expected to generate 1.45 times less return on investment than Silver Predator. But when comparing it to its historical volatility, European Residential Real is 3.17 times less risky than Silver Predator. It trades about 0.24 of its potential returns per unit of risk. Silver Predator Corp is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  8.50  in Silver Predator Corp on September 3, 2024 and sell it today you would earn a total of  3.50  from holding Silver Predator Corp or generate 41.18% return on investment over 90 days.

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

European Residential Real  vs.  Silver Predator Corp

European Residential Real

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in European Residential Real are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, European Residential sustained solid returns over the last few months and may actually be approaching a breakup point.

Silver Predator Corp

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with European Residential and Silver Predator

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

The idea behind European Residential Real and Silver Predator 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.