Correlation Between Labrador Iron and Maple Leaf

Can any of the company-specific risk be diversified away by investing in both Labrador Iron and Maple Leaf 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 Maple Leaf 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 Maple Leaf Foods, you can compare the effects of market volatilities on Labrador Iron and Maple Leaf 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 Maple Leaf. Check out your portfolio center. Please also check ongoing floating volatility patterns of Labrador Iron and Maple Leaf.

Diversification Opportunities for Labrador Iron and Maple Leaf

0.01

Correlation Coefficient

Labrador Iron  Maple Leaf

Significant diversification

The 3 months correlation between Labrador and Maple is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Labrador Iron Ore and Maple Leaf Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maple Leaf Foods 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 Maple Leaf. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maple Leaf Foods has no effect on the direction of Labrador Iron i.e., Labrador Iron and Maple Leaf go up and down completely randomly.

Pair Corralation between Labrador Iron and Maple Leaf

Assuming the 90 days trading horizon Labrador Iron is expected to generate 1.07 times less return on investment than Maple Leaf. But when comparing it to its historical volatility, Labrador Iron Ore is 2.41 times less risky than Maple Leaf. It trades about 0.3 of its potential returns per unit of risk. Maple Leaf Foods is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,012  in Maple Leaf Foods on October 26, 2024 and sell it today you would earn a total of  108.00  from holding Maple Leaf Foods or generate 5.37% return on investment over 90 days.

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

Labrador Iron Ore  vs.  Maple Leaf Foods

Labrador Iron Ore

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Labrador Iron Ore has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Maple Leaf Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Maple Leaf Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Maple Leaf is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Labrador Iron and Maple Leaf

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

The idea behind Labrador Iron Ore and Maple Leaf Foods 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.