Correlation Between Chatham Rock and Geodrill

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

By analyzing existing cross correlation between Chatham Rock Phosphate and Geodrill Limited, you can compare the effects of market volatilities on Chatham Rock and Geodrill 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 Chatham Rock with a short position of Geodrill. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chatham Rock and Geodrill.

Diversification Opportunities for Chatham Rock and Geodrill

0.09

Correlation Coefficient

Chatham Rock  Geodrill

Significant diversification

The 3 months correlation between Chatham and Geodrill is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Chatham Rock Phosphate and Geodrill Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Geodrill Limited and Chatham Rock 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 Chatham Rock Phosphate are associated (or correlated) with Geodrill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Geodrill Limited has no effect on the direction of Chatham Rock i.e., Chatham Rock and Geodrill go up and down completely randomly.

Pair Corralation between Chatham Rock and Geodrill

Assuming the 90 days horizon Chatham Rock Phosphate is expected to generate 6.21 times more return on investment than Geodrill. However, Chatham Rock is 6.21 times more volatile than Geodrill Limited. It trades about 0.08 of its potential returns per unit of risk. Geodrill Limited is currently generating about -0.02 per unit of risk. If you would invest  6.00  in Chatham Rock Phosphate on December 28, 2024 and sell it today you would earn a total of  1.00  from holding Chatham Rock Phosphate or generate 16.67% return on investment over 90 days.

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

Chatham Rock Phosphate  vs.  Geodrill Limited

Chatham Rock Phosphate

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chatham Rock Phosphate are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chatham Rock showed solid returns over the last few months and may actually be approaching a breakup point.

Geodrill Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Geodrill Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Geodrill is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Chatham Rock and Geodrill

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

The idea behind Chatham Rock Phosphate and Geodrill Limited 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.