Correlation Between Mount Gibson and Red Hill

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

By analyzing existing cross correlation between Mount Gibson Iron and Red Hill Iron, you can compare the effects of market volatilities on Mount Gibson and Red Hill 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 Mount Gibson with a short position of Red Hill. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mount Gibson and Red Hill.

Diversification Opportunities for Mount Gibson and Red Hill

0.41

Correlation Coefficient

Mount Gibson  Red Hill

Very weak diversification

The 3 months correlation between Mount and Red is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Mount Gibson Iron and Red Hill Iron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Hill Iron and Mount Gibson 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 Mount Gibson Iron are associated (or correlated) with Red Hill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Hill Iron has no effect on the direction of Mount Gibson i.e., Mount Gibson and Red Hill go up and down completely randomly.

Pair Corralation between Mount Gibson and Red Hill

Assuming the 90 days trading horizon Mount Gibson is expected to generate 139.92 times less return on investment than Red Hill. But when comparing it to its historical volatility, Mount Gibson Iron is 1.02 times less risky than Red Hill. It trades about 0.0 of its potential returns per unit of risk. Red Hill Iron is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  337.00  in Red Hill Iron on September 3, 2024 and sell it today you would earn a total of  68.00  from holding Red Hill Iron or generate 20.18% return on investment over 90 days.

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

Mount Gibson Iron  vs.  Red Hill Iron

Mount Gibson Iron

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mount Gibson Iron has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Mount Gibson is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Red Hill Iron

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Red Hill Iron are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Red Hill unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mount Gibson and Red Hill

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

The idea behind Mount Gibson Iron and Red Hill Iron 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.