Correlation Between Errawarra Resources and Evolution Mining

Can any of the company-specific risk be diversified away by investing in both Errawarra Resources and Evolution Mining 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 Errawarra Resources and Evolution Mining into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Errawarra Resources and Evolution Mining, you can compare the effects of market volatilities on Errawarra Resources and Evolution Mining 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 Errawarra Resources with a short position of Evolution Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Errawarra Resources and Evolution Mining.

Diversification Opportunities for Errawarra Resources and Evolution Mining

-0.18

Correlation Coefficient

Errawarra Resources  Evolution Mining

Good diversification

The 3 months correlation between Errawarra and Evolution is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Errawarra Resources and Evolution Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution Mining and Errawarra Resources 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 Errawarra Resources are associated (or correlated) with Evolution Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution Mining has no effect on the direction of Errawarra Resources i.e., Errawarra Resources and Evolution Mining go up and down completely randomly.

Pair Corralation between Errawarra Resources and Evolution Mining

Assuming the 90 days trading horizon Errawarra Resources is expected to generate 4.08 times more return on investment than Evolution Mining. However, Errawarra Resources is 4.08 times more volatile than Evolution Mining. It trades about 0.02 of its potential returns per unit of risk. Evolution Mining is currently generating about 0.05 per unit of risk. If you would invest  21.00  in Errawarra Resources on October 5, 2024 and sell it today you would lose (16.10) from holding Errawarra Resources or give up 76.67% of portfolio value over 90 days.

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

Errawarra Resources  vs.  Evolution Mining

Errawarra Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Errawarra Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Evolution Mining

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Evolution Mining are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Evolution Mining may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Errawarra Resources and Evolution Mining

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

The idea behind Errawarra Resources and Evolution Mining 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.