Correlation Between Highway 50 and K2 Gold

Can any of the company-specific risk be diversified away by investing in both Highway 50 and K2 Gold 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 Highway 50 and K2 Gold into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Highway 50 Gold and K2 Gold, you can compare the effects of market volatilities on Highway 50 and K2 Gold 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 Highway 50 with a short position of K2 Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Highway 50 and K2 Gold.

Diversification Opportunities for Highway 50 and K2 Gold

0.54

Correlation Coefficient

Highway 50  K2 Gold

Very weak diversification

The 3 months correlation between Highway and KTO is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Highway 50 Gold and K2 Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on K2 Gold and Highway 50 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 Highway 50 Gold are associated (or correlated) with K2 Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of K2 Gold has no effect on the direction of Highway 50 i.e., Highway 50 and K2 Gold go up and down completely randomly.

Pair Corralation between Highway 50 and K2 Gold

Assuming the 90 days horizon Highway 50 Gold is expected to generate 5.08 times more return on investment than K2 Gold. However, Highway 50 is 5.08 times more volatile than K2 Gold. It trades about 0.08 of its potential returns per unit of risk. K2 Gold is currently generating about 0.1 per unit of risk. If you would invest  32.00  in Highway 50 Gold on December 3, 2024 and sell it today you would earn a total of  6.00  from holding Highway 50 Gold or generate 18.75% return on investment over 90 days.

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

Highway 50 Gold  vs.  K2 Gold

Highway 50 Gold

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Highway 50 Gold are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Highway 50 showed solid returns over the last few months and may actually be approaching a breakup point.

K2 Gold

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in K2 Gold are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, K2 Gold showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Highway 50 and K2 Gold

The main advantage of trading using opposite Highway 50 and K2 Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Highway 50 position performs unexpectedly, K2 Gold 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 K2 Gold will offset losses from the drop in K2 Gold's long position.

The idea behind Highway 50 Gold and K2 Gold 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.