Correlation Between Liberty Gold and Rio2

Can any of the company-specific risk be diversified away by investing in both Liberty Gold and Rio2 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 Liberty Gold and Rio2 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Liberty Gold Corp and Rio2, you can compare the effects of market volatilities on Liberty Gold and Rio2 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 Liberty Gold with a short position of Rio2. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liberty Gold and Rio2.

Diversification Opportunities for Liberty Gold and Rio2

0.89

Correlation Coefficient

Liberty Gold  Rio2

Very poor diversification

The 3 months correlation between Liberty and Rio2 is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Gold Corp and Rio2 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio2 and Liberty 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 Liberty Gold Corp are associated (or correlated) with Rio2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio2 has no effect on the direction of Liberty Gold i.e., Liberty Gold and Rio2 go up and down completely randomly.

Pair Corralation between Liberty Gold and Rio2

Assuming the 90 days trading horizon Liberty Gold Corp is expected to generate 1.4 times more return on investment than Rio2. However, Liberty Gold is 1.4 times more volatile than Rio2. It trades about 0.13 of its potential returns per unit of risk. Rio2 is currently generating about 0.17 per unit of risk. If you would invest  26.00  in Liberty Gold Corp on December 21, 2024 and sell it today you would earn a total of  8.00  from holding Liberty Gold Corp or generate 30.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

Liberty Gold Corp  vs.  Rio2

Liberty Gold Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Gold Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Liberty Gold displayed solid returns over the last few months and may actually be approaching a breakup point.

Rio2

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rio2 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Rio2 showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Liberty Gold and Rio2

The main advantage of trading using opposite Liberty Gold and Rio2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Liberty Gold position performs unexpectedly, Rio2 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 Rio2 will offset losses from the drop in Rio2's long position.

The idea behind Liberty Gold Corp and Rio2 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.