Correlation Between SPTSX Dividend and Rock Tech

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

Diversification Opportunities for SPTSX Dividend and Rock Tech

-0.12

Correlation Coefficient

SPTSX Dividend  Rock Tech

Good diversification

The 3 months correlation between SPTSX and Rock is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding SPTSX Dividend Aristocrats and Rock Tech Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rock Tech Lithium 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 Rock Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rock Tech Lithium has no effect on the direction of SPTSX Dividend i.e., SPTSX Dividend and Rock Tech go up and down completely randomly.

Pair Corralation between SPTSX Dividend and Rock Tech

Assuming the 90 days trading horizon SPTSX Dividend Aristocrats is expected to generate 0.11 times more return on investment than Rock Tech. However, SPTSX Dividend Aristocrats is 9.17 times less risky than Rock Tech. It trades about 0.42 of its potential returns per unit of risk. Rock Tech Lithium is currently generating about -0.22 per unit of risk. If you would invest  36,294  in SPTSX Dividend Aristocrats on September 1, 2024 and sell it today you would earn a total of  1,277  from holding SPTSX Dividend Aristocrats or generate 3.52% return on investment over 90 days.

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

SPTSX Dividend Aristocrats  vs.  Rock Tech Lithium

Pair Trading with SPTSX Dividend and Rock Tech

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

The idea behind SPTSX Dividend Aristocrats and Rock Tech Lithium 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.