Correlation Between M3 Mining and Karoon Energy

Can any of the company-specific risk be diversified away by investing in both M3 Mining and Karoon 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 M3 Mining and Karoon Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between M3 Mining and Karoon Energy, you can compare the effects of market volatilities on M3 Mining and Karoon 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 M3 Mining with a short position of Karoon Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of M3 Mining and Karoon Energy.

Diversification Opportunities for M3 Mining and Karoon Energy

0.47

Correlation Coefficient

M3 Mining  Karoon Energy

Very weak diversification

The 3 months correlation between M3M and Karoon is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding M3 Mining and Karoon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Karoon Energy and M3 Mining 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 M3 Mining are associated (or correlated) with Karoon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Karoon Energy has no effect on the direction of M3 Mining i.e., M3 Mining and Karoon Energy go up and down completely randomly.

Pair Corralation between M3 Mining and Karoon Energy

Assuming the 90 days trading horizon M3 Mining is expected to generate 1.31 times more return on investment than Karoon Energy. However, M3 Mining is 1.31 times more volatile than Karoon Energy. It trades about 0.0 of its potential returns per unit of risk. Karoon Energy is currently generating about -0.05 per unit of risk. If you would invest  4.60  in M3 Mining on October 25, 2024 and sell it today you would lose (0.40) from holding M3 Mining or give up 8.7% of portfolio value over 90 days.

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

M3 Mining  vs.  Karoon Energy

M3 Mining

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in M3 Mining are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable primary indicators, M3 Mining is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Karoon Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Karoon Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Karoon Energy is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with M3 Mining and Karoon Energy

The main advantage of trading using opposite M3 Mining and Karoon Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if M3 Mining position performs unexpectedly, Karoon 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 Karoon Energy will offset losses from the drop in Karoon Energy's long position.

The idea behind M3 Mining and Karoon Energy 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.