Correlation Between SPTSX Dividend and Northern Graphite

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

Diversification Opportunities for SPTSX Dividend and Northern Graphite

0.27

Correlation Coefficient

SPTSX Dividend  Northern Graphite

Modest diversification

The 3 months correlation between SPTSX and Northern is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding SPTSX Dividend Aristocrats and Northern Graphite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Graphite 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 Northern Graphite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Graphite has no effect on the direction of SPTSX Dividend i.e., SPTSX Dividend and Northern Graphite go up and down completely randomly.

Pair Corralation between SPTSX Dividend and Northern Graphite

Assuming the 90 days trading horizon SPTSX Dividend Aristocrats is expected to under-perform the Northern Graphite. But the index apears to be less risky and, when comparing its historical volatility, SPTSX Dividend Aristocrats is 26.58 times less risky than Northern Graphite. The index trades about -0.28 of its potential returns per unit of risk. The Northern Graphite is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  8.50  in Northern Graphite on September 27, 2024 and sell it today you would earn a total of  7.50  from holding Northern Graphite or generate 88.24% return on investment over 90 days.

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

SPTSX Dividend Aristocrats  vs.  Northern Graphite

Pair Trading with SPTSX Dividend and Northern Graphite

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

The idea behind SPTSX Dividend Aristocrats and Northern Graphite 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.