Correlation Between Outcrop Gold and Defense Metals

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

By analyzing existing cross correlation between Outcrop Gold Corp and Defense Metals Corp, you can compare the effects of market volatilities on Outcrop Gold and Defense 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 Outcrop Gold with a short position of Defense Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Outcrop Gold and Defense Metals.

Diversification Opportunities for Outcrop Gold and Defense Metals

-0.31

Correlation Coefficient

Outcrop Gold  Defense Metals

Very good diversification

The 3 months correlation between Outcrop and Defense is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Outcrop Gold Corp and Defense Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defense Metals Corp and Outcrop Gold 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 Outcrop Gold Corp are associated (or correlated) with Defense Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defense Metals Corp has no effect on the direction of Outcrop Gold i.e., Outcrop Gold and Defense Metals go up and down completely randomly.

Pair Corralation between Outcrop Gold and Defense Metals

Assuming the 90 days horizon Outcrop Gold is expected to generate 1.05 times less return on investment than Defense Metals. In addition to that, Outcrop Gold is 1.05 times more volatile than Defense Metals Corp. It trades about 0.01 of its total potential returns per unit of risk. Defense Metals Corp is currently generating about 0.01 per unit of volatility. If you would invest  21.00  in Defense Metals Corp on September 24, 2024 and sell it today you would lose (7.00) from holding Defense Metals Corp or give up 33.33% of portfolio value over 90 days.

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

Outcrop Gold Corp  vs.  Defense Metals Corp

Outcrop Gold Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Outcrop Gold Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Defense Metals Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Defense Metals Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Defense Metals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Outcrop Gold and Defense Metals

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

The idea behind Outcrop Gold Corp and Defense Metals Corp 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.