Correlation Between Northern Star and Resource Base

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

Diversification Opportunities for Northern Star and Resource Base

-0.42

Correlation Coefficient

Northern Star  Resource Base

Very good diversification

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

Pair Corralation between Northern Star and Resource Base

Assuming the 90 days trading horizon Northern Star Resources is expected to under-perform the Resource Base. But the stock apears to be less risky and, when comparing its historical volatility, Northern Star Resources is 1.85 times less risky than Resource Base. The stock trades about -0.01 of its potential returns per unit of risk. The Resource Base is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  3.10  in Resource Base on December 2, 2024 and sell it today you would earn a total of  0.50  from holding Resource Base or generate 16.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Northern Star Resources  vs.  Resource Base

Northern Star Resources

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Star Resources are ranked lower than 3 (%) 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.

Resource Base

Risk-Adjusted Performance

Very Weak

Over the last 90 days Resource Base has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic 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 Resource Base

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

The idea behind Northern Star Resources and Resource Base 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.

Check out your portfolio center.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.