Correlation Between Pacific Ridge and Hercules Metals

Can any of the company-specific risk be diversified away by investing in both Pacific Ridge and Hercules Metals 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 Pacific Ridge and Hercules Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Pacific Ridge Exploration and Hercules Metals Corp, you can compare the effects of market volatilities on Pacific Ridge and Hercules Metals 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 Pacific Ridge with a short position of Hercules Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pacific Ridge and Hercules Metals.

Diversification Opportunities for Pacific Ridge and Hercules Metals

0.12

Correlation Coefficient

Pacific Ridge  Hercules Metals

Average diversification

The 3 months correlation between Pacific and Hercules is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Pacific Ridge Exploration and Hercules Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hercules Metals Corp and Pacific Ridge 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 Pacific Ridge Exploration are associated (or correlated) with Hercules Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hercules Metals Corp has no effect on the direction of Pacific Ridge i.e., Pacific Ridge and Hercules Metals go up and down completely randomly.

Pair Corralation between Pacific Ridge and Hercules Metals

Assuming the 90 days horizon Pacific Ridge Exploration is not expected to generate positive returns. Moreover, Pacific Ridge is 5.82 times more volatile than Hercules Metals Corp. It trades away all of its potential returns to assume current level of volatility. Hercules Metals Corp is currently generating about -0.1 per unit of risk. If you would invest  3.00  in Pacific Ridge Exploration on October 12, 2024 and sell it today you would lose (1.00) from holding Pacific Ridge Exploration or give up 33.33% of portfolio value over 90 days.

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

Pacific Ridge Exploration  vs.  Hercules Metals Corp

Pacific Ridge Exploration

Risk-Adjusted Performance

2 of 100

Weak

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

Hercules Metals Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Pacific Ridge and Hercules Metals

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

The idea behind Pacific Ridge Exploration and Hercules Metals Corp 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.