Correlation Between Iron Road and Prodigy Gold

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

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

Diversification Opportunities for Iron Road and Prodigy Gold

-0.06

Correlation Coefficient

Iron Road  Prodigy Gold

Good diversification

The 3 months correlation between Iron and Prodigy is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Iron Road and Prodigy Gold NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prodigy Gold NL 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 Prodigy Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prodigy Gold NL has no effect on the direction of Iron Road i.e., Iron Road and Prodigy Gold go up and down completely randomly.

Pair Corralation between Iron Road and Prodigy Gold

Assuming the 90 days trading horizon Iron Road is expected to generate 48.39 times less return on investment than Prodigy Gold. But when comparing it to its historical volatility, Iron Road is 4.5 times less risky than Prodigy Gold. It trades about 0.0 of its potential returns per unit of risk. Prodigy Gold NL is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  0.50  in Prodigy Gold NL on December 4, 2024 and sell it today you would lose (0.30) from holding Prodigy Gold NL or give up 60.0% of portfolio value over 90 days.

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

Iron Road  vs.  Prodigy Gold NL

Iron Road

Risk-Adjusted Performance

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.

Prodigy Gold NL

Risk-Adjusted Performance

Insignificant

Over the last 90 days Prodigy Gold NL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Prodigy Gold 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 Prodigy Gold

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

The idea behind Iron Road and Prodigy Gold NL 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.