Correlation Between SPTSX Dividend and Trench Metals

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

Diversification Opportunities for SPTSX Dividend and Trench Metals

-0.6

Correlation Coefficient

SPTSX Dividend  Trench Metals

Excellent diversification

The 3 months correlation between SPTSX and Trench is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding SPTSX Dividend Aristocrats and Trench Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trench Metals Corp 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 Trench Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trench Metals Corp has no effect on the direction of SPTSX Dividend i.e., SPTSX Dividend and Trench Metals go up and down completely randomly.

Pair Corralation between SPTSX Dividend and Trench Metals

Assuming the 90 days trading horizon SPTSX Dividend is expected to generate 1.07 times less return on investment than Trench Metals. But when comparing it to its historical volatility, SPTSX Dividend Aristocrats is 22.37 times less risky than Trench Metals. It trades about 0.17 of its potential returns per unit of risk. Trench Metals Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  70.00  in Trench Metals Corp on September 14, 2024 and sell it today you would lose (12.00) from holding Trench Metals Corp or give up 17.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	80.95%
Values	Daily Returns

SPTSX Dividend Aristocrats  vs.  Trench Metals Corp

Pair Trading with SPTSX Dividend and Trench Metals

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

The idea behind SPTSX Dividend Aristocrats and Trench Metals 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.