Correlation Between Leading Edge and Royal Road

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

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

Diversification Opportunities for Leading Edge and Royal Road

0.1

Correlation Coefficient

Leading Edge  Royal Road

Average diversification

The 3 months correlation between Leading and Royal is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Leading Edge Materials and Royal Road Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Road Minerals and Leading Edge 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 Leading Edge Materials are associated (or correlated) with Royal Road. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Road Minerals has no effect on the direction of Leading Edge i.e., Leading Edge and Royal Road go up and down completely randomly.

Pair Corralation between Leading Edge and Royal Road

Assuming the 90 days horizon Leading Edge Materials is expected to generate 1.85 times more return on investment than Royal Road. However, Leading Edge is 1.85 times more volatile than Royal Road Minerals. It trades about 0.15 of its potential returns per unit of risk. Royal Road Minerals is currently generating about 0.0 per unit of risk. If you would invest  9.00  in Leading Edge Materials on December 12, 2024 and sell it today you would earn a total of  13.00  from holding Leading Edge Materials or generate 144.44% return on investment over 90 days.

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

Leading Edge Materials  vs.  Royal Road Minerals

Leading Edge Materials

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Leading Edge Materials are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Leading Edge showed solid returns over the last few months and may actually be approaching a breakup point.

Royal Road Minerals

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Leading Edge and Royal Road

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

The idea behind Leading Edge Materials and Royal Road Minerals 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.