Correlation Between PureCycle Technologies and Potash America

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

By analyzing existing cross correlation between PureCycle Technologies and Potash America, you can compare the effects of market volatilities on PureCycle Technologies and Potash America 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 PureCycle Technologies with a short position of Potash America. Check out your portfolio center. Please also check ongoing floating volatility patterns of PureCycle Technologies and Potash America.

Diversification Opportunities for PureCycle Technologies and Potash America

0.33

Correlation Coefficient

PureCycle Technologies  Potash America

Weak diversification

The 3 months correlation between PureCycle and Potash is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding PureCycle Technologies and Potash America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Potash America and PureCycle Technologies 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 PureCycle Technologies are associated (or correlated) with Potash America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Potash America has no effect on the direction of PureCycle Technologies i.e., PureCycle Technologies and Potash America go up and down completely randomly.

Pair Corralation between PureCycle Technologies and Potash America

Assuming the 90 days horizon PureCycle Technologies is expected to generate 2.31 times less return on investment than Potash America. But when comparing it to its historical volatility, PureCycle Technologies is 1.3 times less risky than Potash America. It trades about 0.02 of its potential returns per unit of risk. Potash America is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  0.08  in Potash America on October 21, 2024 and sell it today you would lose (0.01) from holding Potash America or give up 12.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

PureCycle Technologies  vs.  Potash America

PureCycle Technologies

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PureCycle Technologies are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, PureCycle Technologies may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Potash America

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Potash America are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Potash America displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PureCycle Technologies and Potash America

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

The idea behind PureCycle Technologies and Potash America 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.