Correlation Between Evolution Mining and Red Mountain

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

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

Diversification Opportunities for Evolution Mining and Red Mountain

0.04

Correlation Coefficient

Evolution Mining  Red Mountain

Significant diversification

The 3 months correlation between Evolution and Red is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Evolution Mining and Red Mountain Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Mountain Mining and Evolution Mining 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 Evolution Mining are associated (or correlated) with Red Mountain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Mountain Mining has no effect on the direction of Evolution Mining i.e., Evolution Mining and Red Mountain go up and down completely randomly.

Pair Corralation between Evolution Mining and Red Mountain

Assuming the 90 days trading horizon Evolution Mining is expected to generate 2.65 times less return on investment than Red Mountain. But when comparing it to its historical volatility, Evolution Mining is 4.81 times less risky than Red Mountain. It trades about 0.05 of its potential returns per unit of risk. Red Mountain Mining is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4.37  in Red Mountain Mining on October 13, 2024 and sell it today you would lose (3.47) from holding Red Mountain Mining or give up 79.41% of portfolio value over 90 days.

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

Evolution Mining  vs.  Red Mountain Mining

Evolution Mining

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Evolution Mining are ranked lower than 6 (%) 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.

Red Mountain Mining

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Red Mountain Mining are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Red Mountain may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Evolution Mining and Red Mountain

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

The idea behind Evolution Mining and Red Mountain 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.