Correlation Between Freehold Royalties and Laredo Oil

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

By analyzing existing cross correlation between Freehold Royalties and Laredo Oil, you can compare the effects of market volatilities on Freehold Royalties and Laredo Oil 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 Freehold Royalties with a short position of Laredo Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freehold Royalties and Laredo Oil.

Diversification Opportunities for Freehold Royalties and Laredo Oil

-0.4

Correlation Coefficient

Freehold Royalties  Laredo Oil

Very good diversification

The 3 months correlation between Freehold and Laredo is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Freehold Royalties and Laredo Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Laredo Oil and Freehold Royalties 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 Freehold Royalties are associated (or correlated) with Laredo Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Laredo Oil has no effect on the direction of Freehold Royalties i.e., Freehold Royalties and Laredo Oil go up and down completely randomly.

Pair Corralation between Freehold Royalties and Laredo Oil

Assuming the 90 days horizon Freehold Royalties is expected to generate 11.45 times less return on investment than Laredo Oil. But when comparing it to its historical volatility, Freehold Royalties is 4.49 times less risky than Laredo Oil. It trades about 0.02 of its potential returns per unit of risk. Laredo Oil is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  31.00  in Laredo Oil on December 29, 2024 and sell it today you would earn a total of  4.00  from holding Laredo Oil or generate 12.9% return on investment over 90 days.

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

Freehold Royalties  vs.  Laredo Oil

Freehold Royalties

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Freehold Royalties are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Freehold Royalties is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Laredo Oil

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Laredo Oil are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental indicators, Laredo Oil exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Freehold Royalties and Laredo Oil

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

The idea behind Freehold Royalties and Laredo Oil 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.