Correlation Between SPTSX Dividend and Erdene Resource

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

By analyzing existing cross correlation between SPTSX Dividend Aristocrats and Erdene Resource Development, you can compare the effects of market volatilities on SPTSX Dividend and Erdene Resource 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 SPTSX Dividend with a short position of Erdene Resource. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPTSX Dividend and Erdene Resource.

Diversification Opportunities for SPTSX Dividend and Erdene Resource

0.3

Correlation Coefficient

SPTSX Dividend  Erdene Resource

Weak diversification

The 3 months correlation between SPTSX and Erdene is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding SPTSX Dividend Aristocrats and Erdene Resource Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erdene Resource Deve and SPTSX Dividend 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 SPTSX Dividend Aristocrats are associated (or correlated) with Erdene Resource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erdene Resource Deve has no effect on the direction of SPTSX Dividend i.e., SPTSX Dividend and Erdene Resource go up and down completely randomly.

Pair Corralation between SPTSX Dividend and Erdene Resource

Assuming the 90 days trading horizon SPTSX Dividend is expected to generate 2.39 times less return on investment than Erdene Resource. But when comparing it to its historical volatility, SPTSX Dividend Aristocrats is 6.37 times less risky than Erdene Resource. It trades about 0.26 of its potential returns per unit of risk. Erdene Resource Development is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  42.00  in Erdene Resource Development on September 14, 2024 and sell it today you would earn a total of  17.00  from holding Erdene Resource Development or generate 40.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.43%
Values	Daily Returns

SPTSX Dividend Aristocrats  vs.  Erdene Resource Development

Pair Trading with SPTSX Dividend and Erdene Resource

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

The idea behind SPTSX Dividend Aristocrats and Erdene Resource Development 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.