Correlation Between Pan American and HudBay Minerals

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Can any of the company-specific risk be diversified away by investing in both Pan American and HudBay Minerals 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 Pan American and HudBay Minerals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pan American Silver and HudBay Minerals, you can compare the effects of market volatilities on Pan American and HudBay Minerals 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 Pan American with a short position of HudBay Minerals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pan American and HudBay Minerals.

Diversification Opportunities for Pan American and HudBay Minerals

0.58
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Pan and HudBay is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Pan American Silver and HudBay Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HudBay Minerals and Pan American 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 Pan American Silver are associated (or correlated) with HudBay Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HudBay Minerals has no effect on the direction of Pan American i.e., Pan American and HudBay Minerals go up and down completely randomly.

Pair Corralation between Pan American and HudBay Minerals

Assuming the 90 days trading horizon Pan American Silver is expected to under-perform the HudBay Minerals. But the stock apears to be less risky and, when comparing its historical volatility, Pan American Silver is 1.02 times less risky than HudBay Minerals. The stock trades about -0.09 of its potential returns per unit of risk. The HudBay Minerals is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  1,270  in HudBay Minerals on October 6, 2024 and sell it today you would lose (46.00) from holding HudBay Minerals or give up 3.62% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Pan American Silver  vs.  HudBay Minerals

 Performance 
       Timeline  
Pan American Silver 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Pan American Silver are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Pan American may actually be approaching a critical reversion point that can send shares even higher in February 2025.
HudBay Minerals 

Risk-Adjusted Performance

0 of 100

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

Pan American and HudBay Minerals Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Pan American and HudBay Minerals

The main advantage of trading using opposite Pan American and HudBay Minerals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pan American position performs unexpectedly, HudBay Minerals 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 HudBay Minerals will offset losses from the drop in HudBay Minerals' long position.
The idea behind Pan American Silver and HudBay 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.

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