Correlation Between First National and Labrador Iron

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

By analyzing existing cross correlation between First National Financial and Labrador Iron Ore, you can compare the effects of market volatilities on First National and Labrador Iron 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 National with a short position of Labrador Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of First National and Labrador Iron.

Diversification Opportunities for First National and Labrador Iron

0.05

Correlation Coefficient

First National  Labrador Iron

Significant diversification

The 3 months correlation between First and Labrador is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding First National Financial and Labrador Iron Ore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Labrador Iron Ore and First National 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 National Financial are associated (or correlated) with Labrador Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Labrador Iron Ore has no effect on the direction of First National i.e., First National and Labrador Iron go up and down completely randomly.

Pair Corralation between First National and Labrador Iron

Assuming the 90 days trading horizon First National Financial is expected to generate 1.66 times more return on investment than Labrador Iron. However, First National is 1.66 times more volatile than Labrador Iron Ore. It trades about 0.03 of its potential returns per unit of risk. Labrador Iron Ore is currently generating about 0.02 per unit of risk. If you would invest  1,480  in First National Financial on December 2, 2024 and sell it today you would earn a total of  35.00  from holding First National Financial or generate 2.36% return on investment over 90 days.

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

First National Financial  vs.  Labrador Iron Ore

First National Financial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First National Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, First National is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Labrador Iron Ore

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Labrador Iron Ore are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Labrador Iron is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First National and Labrador Iron

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

The idea behind First National Financial and Labrador Iron Ore 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.