Correlation Between Northern Graphite and Focus Graphite

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

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

Diversification Opportunities for Northern Graphite and Focus Graphite

-0.42

Correlation Coefficient

Northern Graphite  Focus Graphite

Very good diversification

The 3 months correlation between Northern and Focus is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Northern Graphite and Focus Graphite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Focus Graphite and Northern Graphite 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 Graphite are associated (or correlated) with Focus Graphite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Focus Graphite has no effect on the direction of Northern Graphite i.e., Northern Graphite and Focus Graphite go up and down completely randomly.

Pair Corralation between Northern Graphite and Focus Graphite

Assuming the 90 days horizon Northern Graphite is expected to generate 1.36 times more return on investment than Focus Graphite. However, Northern Graphite is 1.36 times more volatile than Focus Graphite. It trades about 0.08 of its potential returns per unit of risk. Focus Graphite is currently generating about -0.04 per unit of risk. If you would invest  5.10  in Northern Graphite on September 4, 2024 and sell it today you would earn a total of  0.93  from holding Northern Graphite or generate 18.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Northern Graphite  vs.  Focus Graphite

Northern Graphite

Risk-Adjusted Performance

6 of 100

Modest

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

Focus Graphite

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Focus Graphite has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Northern Graphite and Focus Graphite

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

The idea behind Northern Graphite and Focus Graphite 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.