Correlation Between Focus Graphite and Red Moon

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

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

Diversification Opportunities for Focus Graphite and Red Moon

0.01

Correlation Coefficient

Focus Graphite  Red Moon

Significant diversification

The 3 months correlation between Focus and Red is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Focus Graphite and Red Moon Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Moon Resources and Focus Graphite 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 Focus Graphite are associated (or correlated) with Red Moon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Moon Resources has no effect on the direction of Focus Graphite i.e., Focus Graphite and Red Moon go up and down completely randomly.

Pair Corralation between Focus Graphite and Red Moon

Assuming the 90 days horizon Focus Graphite is expected to generate 2.63 times more return on investment than Red Moon. However, Focus Graphite is 2.63 times more volatile than Red Moon Resources. It trades about 0.09 of its potential returns per unit of risk. Red Moon Resources is currently generating about 0.0 per unit of risk. If you would invest  5.00  in Focus Graphite on December 2, 2024 and sell it today you would earn a total of  1.00  from holding Focus Graphite or generate 20.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.56%
Values	Daily Returns

Focus Graphite  vs.  Red Moon Resources

Focus Graphite

Risk-Adjusted Performance

Modest

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

Red Moon Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Red Moon Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Red Moon is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Focus Graphite and Red Moon

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

The idea behind Focus Graphite and Red Moon 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.