Correlation Between Labrador Iron and Tree Island

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

Diversification Opportunities for Labrador Iron and Tree Island

-0.34

Correlation Coefficient

Labrador Iron  Tree Island

Very good diversification

The 3 months correlation between Labrador and Tree is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Labrador Iron Ore and Tree Island Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tree Island Steel 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 Tree Island. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tree Island Steel has no effect on the direction of Labrador Iron i.e., Labrador Iron and Tree Island go up and down completely randomly.

Pair Corralation between Labrador Iron and Tree Island

Assuming the 90 days trading horizon Labrador Iron Ore is expected to generate 0.59 times more return on investment than Tree Island. However, Labrador Iron Ore is 1.7 times less risky than Tree Island. It trades about 0.03 of its potential returns per unit of risk. Tree Island Steel is currently generating about 0.02 per unit of risk. If you would invest  2,839  in Labrador Iron Ore on October 9, 2024 and sell it today you would earn a total of  140.00  from holding Labrador Iron Ore or generate 4.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.39%
Values	Daily Returns

Labrador Iron Ore  vs.  Tree Island Steel

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 latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Tree Island Steel

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tree Island Steel are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating essential indicators, Tree Island may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Labrador Iron and Tree Island

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

The idea behind Labrador Iron Ore and Tree Island Steel 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.