Correlation Between North American and Fortuna Silver

Can any of the company-specific risk be diversified away by investing in both North American and Fortuna Silver 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 North American and Fortuna Silver into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between North American Construction and Fortuna Silver Mines, you can compare the effects of market volatilities on North American and Fortuna Silver 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 North American with a short position of Fortuna Silver. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Fortuna Silver.

Diversification Opportunities for North American and Fortuna Silver

0.25

Correlation Coefficient

North American  Fortuna Silver

Modest diversification

The 3 months correlation between North and Fortuna is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Fortuna Silver Mines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortuna Silver Mines and North American 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 North American Construction are associated (or correlated) with Fortuna Silver. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortuna Silver Mines has no effect on the direction of North American i.e., North American and Fortuna Silver go up and down completely randomly.

Pair Corralation between North American and Fortuna Silver

Assuming the 90 days horizon North American Construction is expected to generate 0.88 times more return on investment than Fortuna Silver. However, North American Construction is 1.13 times less risky than Fortuna Silver. It trades about 0.13 of its potential returns per unit of risk. Fortuna Silver Mines is currently generating about 0.08 per unit of risk. If you would invest  1,580  in North American Construction on September 12, 2024 and sell it today you would earn a total of  350.00  from holding North American Construction or generate 22.15% return on investment over 90 days.

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

North American Construction  vs.  Fortuna Silver Mines

North American Const

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, North American reported solid returns over the last few months and may actually be approaching a breakup point.

Fortuna Silver Mines

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fortuna Silver Mines are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Fortuna Silver reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North American and Fortuna Silver

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

The idea behind North American Construction and Fortuna Silver Mines 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.