Correlation Between Northern Star and Capricorn Metals

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

Diversification Opportunities for Northern Star and Capricorn Metals

0.73

Correlation Coefficient

Northern Star  Capricorn Metals

Poor diversification

The 3 months correlation between Northern and Capricorn is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Northern Star Resources and Capricorn Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capricorn Metals 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 Capricorn Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capricorn Metals has no effect on the direction of Northern Star i.e., Northern Star and Capricorn Metals go up and down completely randomly.

Pair Corralation between Northern Star and Capricorn Metals

Assuming the 90 days trading horizon Northern Star is expected to generate 12.39 times less return on investment than Capricorn Metals. In addition to that, Northern Star is 1.0 times more volatile than Capricorn Metals. It trades about 0.01 of its total potential returns per unit of risk. Capricorn Metals is currently generating about 0.17 per unit of volatility. If you would invest  649.00  in Capricorn Metals on November 29, 2024 and sell it today you would earn a total of  126.00  from holding Capricorn Metals or generate 19.41% return on investment over 90 days.

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

Northern Star Resources  vs.  Capricorn Metals

Northern Star Resources

Risk-Adjusted Performance

Very 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.

Capricorn Metals

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capricorn Metals are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, Capricorn Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northern Star and Capricorn Metals

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

The idea behind Northern Star Resources and Capricorn Metals 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.