Correlation Between K2 Gold and Trench Metals

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

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

Diversification Opportunities for K2 Gold and Trench Metals

-0.65

Correlation Coefficient

K2 Gold  Trench Metals

Excellent diversification

The 3 months correlation between KTO and Trench is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding K2 Gold 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 K2 Gold 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 K2 Gold 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 K2 Gold i.e., K2 Gold and Trench Metals go up and down completely randomly.

Pair Corralation between K2 Gold and Trench Metals

Assuming the 90 days horizon K2 Gold is expected to generate 0.89 times more return on investment than Trench Metals. However, K2 Gold is 1.13 times less risky than Trench Metals. It trades about 0.24 of its potential returns per unit of risk. Trench Metals Corp is currently generating about 0.09 per unit of risk. If you would invest  9.50  in K2 Gold on September 15, 2024 and sell it today you would earn a total of  3.50  from holding K2 Gold or generate 36.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	40.91%
Values	Daily Returns

K2 Gold  vs.  Trench Metals Corp

K2 Gold

Risk-Adjusted Performance

8 of 100

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 unfluctuating basic indicators, K2 Gold showed solid returns over the last few months and may actually be approaching a breakup point.

Trench Metals Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Trench Metals Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Trench Metals is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with K2 Gold and Trench Metals

The main advantage of trading using opposite K2 Gold and Trench Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if K2 Gold 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 K2 Gold 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.