Correlation Between Northern Star and West African

Can any of the company-specific risk be diversified away by investing in both Northern Star and West African 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 Northern Star and West African into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Northern Star and West African

0.59

Correlation Coefficient

Northern Star  West African

Very weak diversification

The 3 months correlation between Northern and West is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Northern Star Resources and West African Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West African Resources and Northern Star 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 Northern Star Resources are associated (or correlated) with West African. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West African Resources has no effect on the direction of Northern Star i.e., Northern Star and West African go up and down completely randomly.

Pair Corralation between Northern Star and West African

Assuming the 90 days horizon Northern Star is expected to generate 1.2 times less return on investment than West African. In addition to that, Northern Star is 1.33 times more volatile than West African Resources. It trades about 0.03 of its total potential returns per unit of risk. West African Resources is currently generating about 0.05 per unit of volatility. If you would invest  91.00  in West African Resources on November 29, 2024 and sell it today you would earn a total of  6.00  from holding West African Resources or generate 6.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	88.71%
Values	Daily Returns

Northern Star Resources  vs.  West African Resources

Northern Star Resources

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Star Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Northern Star may actually be approaching a critical reversion point that can send shares even higher in March 2025.

West African Resources

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in West African Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, West African may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Northern Star and West African

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

The idea behind Northern Star Resources and West African Resources 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.