Correlation Between Northern Star and Australian Potash

Can any of the company-specific risk be diversified away by investing in both Northern Star and Australian Potash 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 Australian Potash 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 Australian Potash, you can compare the effects of market volatilities on Northern Star and Australian Potash 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 Australian Potash. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Star and Australian Potash.

Diversification Opportunities for Northern Star and Australian Potash

0.08

Correlation Coefficient

Northern Star  Australian Potash

Significant diversification

The 3 months correlation between Northern and Australian is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Northern Star Resources and Australian Potash in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Potash 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 Australian Potash. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Potash has no effect on the direction of Northern Star i.e., Northern Star and Australian Potash go up and down completely randomly.

Pair Corralation between Northern Star and Australian Potash

Assuming the 90 days trading horizon Northern Star Resources is expected to generate 0.14 times more return on investment than Australian Potash. However, Northern Star Resources is 7.19 times less risky than Australian Potash. It trades about 0.02 of its potential returns per unit of risk. Australian Potash is currently generating about -0.01 per unit of risk. If you would invest  1,581  in Northern Star Resources on September 18, 2024 and sell it today you would earn a total of  29.00  from holding Northern Star Resources or generate 1.83% return on investment over 90 days.

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

Northern Star Resources  vs.  Australian Potash

Northern Star Resources

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Star Resources are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Northern Star is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Australian Potash

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Australian Potash has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Northern Star and Australian Potash

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

The idea behind Northern Star Resources and Australian Potash 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.