Correlation Between First Majestic and Pan American

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

By analyzing existing cross correlation between First Majestic Silver and Pan American Silver, you can compare the effects of market volatilities on First Majestic and Pan American 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 First Majestic with a short position of Pan American. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Majestic and Pan American.

Diversification Opportunities for First Majestic and Pan American

0.83

Correlation Coefficient

First Majestic  Pan American

Very poor diversification

The 3 months correlation between First and Pan is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding First Majestic Silver and Pan American Silver in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pan American Silver and First Majestic 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 First Majestic Silver are associated (or correlated) with Pan American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pan American Silver has no effect on the direction of First Majestic i.e., First Majestic and Pan American go up and down completely randomly.

Pair Corralation between First Majestic and Pan American

Assuming the 90 days horizon First Majestic Silver is expected to generate 1.44 times more return on investment than Pan American. However, First Majestic is 1.44 times more volatile than Pan American Silver. It trades about 0.13 of its potential returns per unit of risk. Pan American Silver is currently generating about 0.14 per unit of risk. If you would invest  525.00  in First Majestic Silver on October 23, 2024 and sell it today you would earn a total of  36.00  from holding First Majestic Silver or generate 6.86% return on investment over 90 days.

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

First Majestic Silver  vs.  Pan American Silver

First Majestic Silver

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Majestic Silver has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pan American Silver

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pan American Silver has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with First Majestic and Pan American

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

The idea behind First Majestic Silver and Pan American Silver 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.