Correlation Between Geodrill and Rockridge Resources

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

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

Diversification Opportunities for Geodrill and Rockridge Resources

0.38

Correlation Coefficient

Geodrill  Rockridge Resources

Weak diversification

The 3 months correlation between Geodrill and Rockridge is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Geodrill Limited and Rockridge Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rockridge Resources and Geodrill 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 Geodrill Limited are associated (or correlated) with Rockridge Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rockridge Resources has no effect on the direction of Geodrill i.e., Geodrill and Rockridge Resources go up and down completely randomly.

Pair Corralation between Geodrill and Rockridge Resources

Assuming the 90 days trading horizon Geodrill is expected to generate 12.64 times less return on investment than Rockridge Resources. But when comparing it to its historical volatility, Geodrill Limited is 5.22 times less risky than Rockridge Resources. It trades about 0.02 of its potential returns per unit of risk. Rockridge Resources is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4.00  in Rockridge Resources on September 20, 2024 and sell it today you would lose (2.00) from holding Rockridge Resources or give up 50.0% of portfolio value over 90 days.

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

Geodrill Limited  vs.  Rockridge Resources

Geodrill Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Geodrill Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Geodrill displayed solid returns over the last few months and may actually be approaching a breakup point.

Rockridge Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rockridge Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, Rockridge Resources showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Geodrill and Rockridge Resources

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

The idea behind Geodrill Limited and Rockridge Resources 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .