Correlation Between Gem Diamonds and Scottie Resources

Can any of the company-specific risk be diversified away by investing in both Gem Diamonds and Scottie 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 Gem Diamonds and Scottie Resources 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 Scottie Resources Corp, you can compare the effects of market volatilities on Gem Diamonds and Scottie 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 Gem Diamonds with a short position of Scottie Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gem Diamonds and Scottie Resources.

Diversification Opportunities for Gem Diamonds and Scottie Resources

0.49

Correlation Coefficient

Gem Diamonds  Scottie Resources

Very weak diversification

The 3 months correlation between Gem and Scottie is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Gem Diamonds Limited and Scottie Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scottie Resources Corp 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 Scottie Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scottie Resources Corp has no effect on the direction of Gem Diamonds i.e., Gem Diamonds and Scottie Resources go up and down completely randomly.

Pair Corralation between Gem Diamonds and Scottie Resources

Assuming the 90 days horizon Gem Diamonds Limited is expected to generate 1.64 times more return on investment than Scottie Resources. However, Gem Diamonds is 1.64 times more volatile than Scottie Resources Corp. It trades about 0.04 of its potential returns per unit of risk. Scottie Resources Corp is currently generating about 0.02 per unit of risk. If you would invest  10.00  in Gem Diamonds Limited on September 2, 2024 and sell it today you would earn a total of  1.00  from holding Gem Diamonds Limited or generate 10.0% return on investment over 90 days.

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

Gem Diamonds Limited  vs.  Scottie Resources Corp

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 fragile performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Scottie Resources Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Gem Diamonds and Scottie Resources

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

The idea behind Gem Diamonds Limited and Scottie Resources Corp 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.