Correlation Between Pan American and West Red

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

Diversification Opportunities for Pan American and West Red

0.56

Correlation Coefficient

Pan American  West Red

Very weak diversification

The 3 months correlation between Pan and West is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Pan American Silver and West Red Lake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Red Lake 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 West Red. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Red Lake has no effect on the direction of Pan American i.e., Pan American and West Red go up and down completely randomly.

Pair Corralation between Pan American and West Red

Given the investment horizon of 90 days Pan American Silver is expected to generate 0.74 times more return on investment than West Red. However, Pan American Silver is 1.35 times less risky than West Red. It trades about 0.12 of its potential returns per unit of risk. West Red Lake is currently generating about -0.06 per unit of risk. If you would invest  2,083  in Pan American Silver on October 26, 2024 and sell it today you would earn a total of  99.00  from holding Pan American Silver or generate 4.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

Pan American Silver  vs.  West Red Lake

Pan American Silver

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pan American Silver has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

West Red Lake

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days West Red Lake has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, West Red is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Pan American and West Red

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

The idea behind Pan American Silver and West Red Lake 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.