Correlation Between FAR and Prairie Provident

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

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

Diversification Opportunities for FAR and Prairie Provident

0.41

Correlation Coefficient

FAR  Prairie Provident

Very weak diversification

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

Pair Corralation between FAR and Prairie Provident

Assuming the 90 days horizon FAR is expected to generate 50.52 times less return on investment than Prairie Provident. But when comparing it to its historical volatility, FAR Limited is 28.92 times less risky than Prairie Provident. It trades about 0.09 of its potential returns per unit of risk. Prairie Provident Resources is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1.06  in Prairie Provident Resources on December 28, 2024 and sell it today you would earn a total of  2.45  from holding Prairie Provident Resources or generate 231.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.67%
Values	Daily Returns

FAR Limited  vs.  Prairie Provident Resources

FAR Limited

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FAR Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, FAR may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Prairie Provident

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prairie Provident Resources are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Prairie Provident reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FAR and Prairie Provident

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

The idea behind FAR Limited and Prairie Provident Resources 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.