Correlation Between Pacific Ridge and Tectonic Metals

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

Diversification Opportunities for Pacific Ridge and Tectonic Metals

0.61

Correlation Coefficient

Pacific Ridge  Tectonic Metals

Poor diversification

The 3 months correlation between Pacific and Tectonic is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Pacific Ridge Exploration and Tectonic Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tectonic Metals 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 Tectonic Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tectonic Metals has no effect on the direction of Pacific Ridge i.e., Pacific Ridge and Tectonic Metals go up and down completely randomly.

Pair Corralation between Pacific Ridge and Tectonic Metals

Assuming the 90 days horizon Pacific Ridge Exploration is expected to generate 3.46 times more return on investment than Tectonic Metals. However, Pacific Ridge is 3.46 times more volatile than Tectonic Metals. It trades about 0.11 of its potential returns per unit of risk. Tectonic Metals is currently generating about 0.11 per unit of risk. If you would invest  2.00  in Pacific Ridge Exploration on October 11, 2024 and sell it today you would earn a total of  0.00  from holding Pacific Ridge Exploration or generate 0.0% return on investment over 90 days.

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

Pacific Ridge Exploration  vs.  Tectonic Metals

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.

Tectonic Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tectonic Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's fundamental indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Pacific Ridge and Tectonic Metals

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

The idea behind Pacific Ridge Exploration and Tectonic Metals 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.