Correlation Between Palamina Corp and Royal Road

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

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

Diversification Opportunities for Palamina Corp and Royal Road

-0.02

Correlation Coefficient

Palamina Corp  Royal Road

Good diversification

The 3 months correlation between Palamina and Royal is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Palamina Corp and Royal Road Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Road Minerals and Palamina Corp 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 Palamina Corp are associated (or correlated) with Royal Road. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Road Minerals has no effect on the direction of Palamina Corp i.e., Palamina Corp and Royal Road go up and down completely randomly.

Pair Corralation between Palamina Corp and Royal Road

Given the investment horizon of 90 days Palamina Corp is expected to generate 5.65 times less return on investment than Royal Road. But when comparing it to its historical volatility, Palamina Corp is 1.01 times less risky than Royal Road. It trades about 0.01 of its potential returns per unit of risk. Royal Road Minerals is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  10.00  in Royal Road Minerals on December 29, 2024 and sell it today you would earn a total of  1.00  from holding Royal Road Minerals or generate 10.0% return on investment over 90 days.

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

Palamina Corp  vs.  Royal Road Minerals

Palamina Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Palamina Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Palamina Corp is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Royal Road Minerals

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Road Minerals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Royal Road showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Palamina Corp and Royal Road

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

The idea behind Palamina Corp and Royal Road Minerals 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.