Correlation Between Iron Road and Challenger

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

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

Diversification Opportunities for Iron Road and Challenger

0.49

Correlation Coefficient

Iron Road  Challenger

Very weak diversification

The 3 months correlation between Iron and Challenger is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Iron Road and Challenger in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Challenger and Iron Road 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 Iron Road are associated (or correlated) with Challenger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Challenger has no effect on the direction of Iron Road i.e., Iron Road and Challenger go up and down completely randomly.

Pair Corralation between Iron Road and Challenger

Assuming the 90 days trading horizon Iron Road is expected to under-perform the Challenger. In addition to that, Iron Road is 1.26 times more volatile than Challenger. It trades about -0.22 of its total potential returns per unit of risk. Challenger is currently generating about -0.11 per unit of volatility. If you would invest  628.00  in Challenger on September 19, 2024 and sell it today you would lose (22.00) from holding Challenger or give up 3.5% of portfolio value over 90 days.

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

Iron Road  vs.  Challenger

Iron Road

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iron Road has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Challenger

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Challenger has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Challenger is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Iron Road and Challenger

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

The idea behind Iron Road and Challenger 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.