Correlation Between Falcon Gold and Rio2

Can any of the company-specific risk be diversified away by investing in both Falcon Gold and Rio2 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 Falcon Gold and Rio2 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Falcon Gold Corp and Rio2 Limited, you can compare the effects of market volatilities on Falcon Gold and Rio2 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 Falcon Gold with a short position of Rio2. Check out your portfolio center. Please also check ongoing floating volatility patterns of Falcon Gold and Rio2.

Diversification Opportunities for Falcon Gold and Rio2

0.74

Correlation Coefficient

Falcon Gold  Rio2

Poor diversification

The 3 months correlation between Falcon and Rio2 is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Falcon Gold Corp and Rio2 Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio2 Limited and Falcon Gold 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 Falcon Gold Corp are associated (or correlated) with Rio2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio2 Limited has no effect on the direction of Falcon Gold i.e., Falcon Gold and Rio2 go up and down completely randomly.

Pair Corralation between Falcon Gold and Rio2

Assuming the 90 days horizon Falcon Gold Corp is expected to generate 2.17 times more return on investment than Rio2. However, Falcon Gold is 2.17 times more volatile than Rio2 Limited. It trades about 0.04 of its potential returns per unit of risk. Rio2 Limited is currently generating about 0.09 per unit of risk. If you would invest  4.17  in Falcon Gold Corp on December 2, 2024 and sell it today you would lose (1.72) from holding Falcon Gold Corp or give up 41.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.6%
Values	Daily Returns

Falcon Gold Corp  vs.  Rio2 Limited

Falcon Gold Corp

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Falcon Gold Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Falcon Gold reported solid returns over the last few months and may actually be approaching a breakup point.

Rio2 Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rio2 Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Rio2 reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Falcon Gold and Rio2

The main advantage of trading using opposite Falcon Gold and Rio2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Falcon Gold position performs unexpectedly, Rio2 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 Rio2 will offset losses from the drop in Rio2's long position.

The idea behind Falcon Gold Corp and Rio2 Limited 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.

Check out your portfolio center.

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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.