Correlation Between Petra Diamonds and Arctic Star

Can any of the company-specific risk be diversified away by investing in both Petra Diamonds and Arctic Star 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 Petra Diamonds and Arctic Star into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Petra Diamonds Limited and Arctic Star Exploration, you can compare the effects of market volatilities on Petra Diamonds and Arctic Star 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 Petra Diamonds with a short position of Arctic Star. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petra Diamonds and Arctic Star.

Diversification Opportunities for Petra Diamonds and Arctic Star

0.14

Correlation Coefficient

Petra Diamonds  Arctic Star

Average diversification

The 3 months correlation between Petra and Arctic is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Petra Diamonds Limited and Arctic Star Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arctic Star Exploration and Petra Diamonds 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 Petra Diamonds Limited are associated (or correlated) with Arctic Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arctic Star Exploration has no effect on the direction of Petra Diamonds i.e., Petra Diamonds and Arctic Star go up and down completely randomly.

Pair Corralation between Petra Diamonds and Arctic Star

Assuming the 90 days horizon Petra Diamonds Limited is expected to under-perform the Arctic Star. But the pink sheet apears to be less risky and, when comparing its historical volatility, Petra Diamonds Limited is 1.23 times less risky than Arctic Star. The pink sheet trades about -0.17 of its potential returns per unit of risk. The Arctic Star Exploration is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  1.13  in Arctic Star Exploration on September 16, 2024 and sell it today you would lose (0.24) from holding Arctic Star Exploration or give up 21.24% of portfolio value over 90 days.

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

Petra Diamonds Limited  vs.  Arctic Star Exploration

Petra Diamonds

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petra Diamonds Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Arctic Star Exploration

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arctic Star Exploration has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Petra Diamonds and Arctic Star

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

The idea behind Petra Diamonds Limited and Arctic Star Exploration 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.