Correlation Between MotorCycle Holdings and Sandfire Resources

Can any of the company-specific risk be diversified away by investing in both MotorCycle Holdings and Sandfire Resources 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 MotorCycle Holdings and Sandfire Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MotorCycle Holdings and Sandfire Resources NL, you can compare the effects of market volatilities on MotorCycle Holdings and Sandfire Resources 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 MotorCycle Holdings with a short position of Sandfire Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of MotorCycle Holdings and Sandfire Resources.

Diversification Opportunities for MotorCycle Holdings and Sandfire Resources

0.34

Correlation Coefficient

MotorCycle Holdings  Sandfire Resources

Weak diversification

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

Pair Corralation between MotorCycle Holdings and Sandfire Resources

Assuming the 90 days trading horizon MotorCycle Holdings is expected to generate 1.18 times less return on investment than Sandfire Resources. In addition to that, MotorCycle Holdings is 1.33 times more volatile than Sandfire Resources NL. It trades about 0.14 of its total potential returns per unit of risk. Sandfire Resources NL is currently generating about 0.22 per unit of volatility. If you would invest  815.00  in Sandfire Resources NL on September 5, 2024 and sell it today you would earn a total of  229.00  from holding Sandfire Resources NL or generate 28.1% return on investment over 90 days.

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

MotorCycle Holdings  vs.  Sandfire Resources NL

MotorCycle Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MotorCycle Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, MotorCycle Holdings unveiled solid returns over the last few months and may actually be approaching a breakup point.

Sandfire Resources

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sandfire Resources NL are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sandfire Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MotorCycle Holdings and Sandfire Resources

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

The idea behind MotorCycle Holdings and Sandfire Resources NL 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.