Correlation Between Northern Graphite and Vulcan Minerals

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

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

Diversification Opportunities for Northern Graphite and Vulcan Minerals

0.35

Correlation Coefficient

Northern Graphite  Vulcan Minerals

Weak diversification

The 3 months correlation between Northern and Vulcan is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Northern Graphite and Vulcan Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Minerals 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 Vulcan Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Minerals has no effect on the direction of Northern Graphite i.e., Northern Graphite and Vulcan Minerals go up and down completely randomly.

Pair Corralation between Northern Graphite and Vulcan Minerals

Assuming the 90 days horizon Northern Graphite is expected to under-perform the Vulcan Minerals. But the otc stock apears to be less risky and, when comparing its historical volatility, Northern Graphite is 2.78 times less risky than Vulcan Minerals. The otc stock trades about -0.04 of its potential returns per unit of risk. The Vulcan Minerals is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  5.41  in Vulcan Minerals on December 30, 2024 and sell it today you would lose (0.41) from holding Vulcan Minerals or give up 7.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

Northern Graphite  vs.  Vulcan Minerals

Northern Graphite

Risk-Adjusted Performance

Very Weak

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

Vulcan Minerals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Minerals are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Vulcan Minerals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northern Graphite and Vulcan Minerals

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

The idea behind Northern Graphite and Vulcan Minerals 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.