Correlation Between Highland Copper and World Copper

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

By analyzing existing cross correlation between Highland Copper and World Copper, you can compare the effects of market volatilities on Highland Copper and World Copper 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 Highland Copper with a short position of World Copper. Check out your portfolio center. Please also check ongoing floating volatility patterns of Highland Copper and World Copper.

Diversification Opportunities for Highland Copper and World Copper

0.05

Correlation Coefficient

Highland Copper  World Copper

Significant diversification

The 3 months correlation between Highland and World is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Highland Copper and World Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Copper and Highland Copper 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 Highland Copper are associated (or correlated) with World Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Copper has no effect on the direction of Highland Copper i.e., Highland Copper and World Copper go up and down completely randomly.

Pair Corralation between Highland Copper and World Copper

Given the investment horizon of 90 days Highland Copper is expected to under-perform the World Copper. But the stock apears to be less risky and, when comparing its historical volatility, Highland Copper is 1.36 times less risky than World Copper. The stock trades about -0.05 of its potential returns per unit of risk. The World Copper is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  6.00  in World Copper on September 24, 2024 and sell it today you would earn a total of  0.50  from holding World Copper or generate 8.33% return on investment over 90 days.

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

Highland Copper  vs.  World Copper

Highland Copper

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Highland Copper has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

World Copper

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in World Copper are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, World Copper showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Highland Copper and World Copper

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

The idea behind Highland Copper and World Copper 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.