Correlation Between Northern Star and Red Mountain

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

Diversification Opportunities for Northern Star and Red Mountain

0.11

Correlation Coefficient

Northern Star  Red Mountain

Average diversification

The 3 months correlation between Northern and Red is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Northern Star Resources and Red Mountain Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Mountain Mining 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 Red Mountain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Mountain Mining has no effect on the direction of Northern Star i.e., Northern Star and Red Mountain go up and down completely randomly.

Pair Corralation between Northern Star and Red Mountain

Assuming the 90 days trading horizon Northern Star Resources is expected to under-perform the Red Mountain. But the stock apears to be less risky and, when comparing its historical volatility, Northern Star Resources is 3.66 times less risky than Red Mountain. The stock trades about -0.02 of its potential returns per unit of risk. The Red Mountain Mining is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1.00  in Red Mountain Mining on September 25, 2024 and sell it today you would lose (0.10) from holding Red Mountain Mining or give up 10.0% of portfolio value over 90 days.

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

Northern Star Resources  vs.  Red Mountain Mining

Northern Star Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Star Resources has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Red Mountain Mining

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Red Mountain Mining are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Red Mountain may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Northern Star and Red Mountain

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

The idea behind Northern Star Resources and Red Mountain Mining 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.