Correlation Between Gem Diamonds and Mountain Province

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

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

Diversification Opportunities for Gem Diamonds and Mountain Province

0.69

Correlation Coefficient

Gem Diamonds  Mountain Province

Poor diversification

The 3 months correlation between Gem and Mountain is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Gem Diamonds Limited and Mountain Province Diamonds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mountain Province and Gem Diamonds 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 Gem Diamonds Limited are associated (or correlated) with Mountain Province. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mountain Province has no effect on the direction of Gem Diamonds i.e., Gem Diamonds and Mountain Province go up and down completely randomly.

Pair Corralation between Gem Diamonds and Mountain Province

Assuming the 90 days horizon Gem Diamonds Limited is expected to generate 1.17 times more return on investment than Mountain Province. However, Gem Diamonds is 1.17 times more volatile than Mountain Province Diamonds. It trades about 0.22 of its potential returns per unit of risk. Mountain Province Diamonds is currently generating about -0.13 per unit of risk. If you would invest  10.00  in Gem Diamonds Limited on October 17, 2024 and sell it today you would earn a total of  3.00  from holding Gem Diamonds Limited or generate 30.0% return on investment over 90 days.

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

Gem Diamonds Limited  vs.  Mountain Province Diamonds

Gem Diamonds Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gem Diamonds Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Gem Diamonds is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Mountain Province

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mountain Province Diamonds has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Gem Diamonds and Mountain Province

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

The idea behind Gem Diamonds Limited and Mountain Province Diamonds 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.