Correlation Between Labrador Iron and Falcon Energy

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

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

Diversification Opportunities for Labrador Iron and Falcon Energy

-0.5

Correlation Coefficient

Labrador Iron  Falcon Energy

Very good diversification

The 3 months correlation between Labrador and Falcon is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Labrador Iron Ore and Falcon Energy Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falcon Energy Materials and Labrador Iron 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 Labrador Iron Ore are associated (or correlated) with Falcon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falcon Energy Materials has no effect on the direction of Labrador Iron i.e., Labrador Iron and Falcon Energy go up and down completely randomly.

Pair Corralation between Labrador Iron and Falcon Energy

Assuming the 90 days trading horizon Labrador Iron is expected to generate 4.68 times less return on investment than Falcon Energy. But when comparing it to its historical volatility, Labrador Iron Ore is 3.25 times less risky than Falcon Energy. It trades about 0.04 of its potential returns per unit of risk. Falcon Energy Materials is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  64.00  in Falcon Energy Materials on September 13, 2024 and sell it today you would earn a total of  6.00  from holding Falcon Energy Materials or generate 9.38% return on investment over 90 days.

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

Labrador Iron Ore  vs.  Falcon Energy Materials

Labrador Iron Ore

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Labrador Iron Ore are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Labrador Iron is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Falcon Energy Materials

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Falcon Energy Materials are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Falcon Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Labrador Iron and Falcon Energy

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

The idea behind Labrador Iron Ore and Falcon Energy Materials 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.