Correlation Between Gem Diamonds and Silver Grail

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

Diversification Opportunities for Gem Diamonds and Silver Grail

0.65

Correlation Coefficient

Gem Diamonds  Silver Grail

Poor diversification

The 3 months correlation between Gem and Silver is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Gem Diamonds Limited and Silver Grail Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silver Grail Resources 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 Silver Grail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silver Grail Resources has no effect on the direction of Gem Diamonds i.e., Gem Diamonds and Silver Grail go up and down completely randomly.

Pair Corralation between Gem Diamonds and Silver Grail

Assuming the 90 days horizon Gem Diamonds Limited is expected to under-perform the Silver Grail. But the pink sheet apears to be less risky and, when comparing its historical volatility, Gem Diamonds Limited is 4.69 times less risky than Silver Grail. The pink sheet trades about -0.19 of its potential returns per unit of risk. The Silver Grail Resources is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  8.00  in Silver Grail Resources on September 2, 2024 and sell it today you would lose (1.00) from holding Silver Grail Resources or give up 12.5% of portfolio value over 90 days.

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

Gem Diamonds Limited  vs.  Silver Grail Resources

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.

Silver Grail Resources

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Silver Grail Resources are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Silver Grail reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gem Diamonds and Silver Grail

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

The idea behind Gem Diamonds Limited and Silver Grail 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.