Correlation Between Focus Graphite and Canada Carbon

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

By analyzing existing cross correlation between Focus Graphite and Canada Carbon, you can compare the effects of market volatilities on Focus Graphite and Canada Carbon 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 Canada Carbon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Focus Graphite and Canada Carbon.

Diversification Opportunities for Focus Graphite and Canada Carbon

0.41

Correlation Coefficient

Focus Graphite  Canada Carbon

Very weak diversification

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

Pair Corralation between Focus Graphite and Canada Carbon

Assuming the 90 days horizon Focus Graphite is expected to under-perform the Canada Carbon. But the stock apears to be less risky and, when comparing its historical volatility, Focus Graphite is 4.02 times less risky than Canada Carbon. The stock trades about -0.06 of its potential returns per unit of risk. The Canada Carbon is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4.00  in Canada Carbon on September 28, 2024 and sell it today you would lose (3.00) from holding Canada Carbon or give up 75.0% of portfolio value over 90 days.

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

Focus Graphite  vs.  Canada Carbon

Focus Graphite

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Focus Graphite has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Focus Graphite is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Canada Carbon

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Canada Carbon are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Canada Carbon showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Focus Graphite and Canada Carbon

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

The idea behind Focus Graphite and Canada Carbon 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.