Correlation Between Prairie Provident and McChip Resources

Can any of the company-specific risk be diversified away by investing in both Prairie Provident and McChip Resources 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 Prairie Provident and McChip Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Prairie Provident and McChip Resources

-0.57

Correlation Coefficient

Prairie Provident  McChip Resources

Excellent diversification

The 3 months correlation between Prairie and McChip is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Prairie Provident Resources and McChip Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McChip Resources and Prairie Provident 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 Prairie Provident Resources are associated (or correlated) with McChip Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McChip Resources has no effect on the direction of Prairie Provident i.e., Prairie Provident and McChip Resources go up and down completely randomly.

Pair Corralation between Prairie Provident and McChip Resources

Assuming the 90 days trading horizon Prairie Provident Resources is expected to generate 1.96 times more return on investment than McChip Resources. However, Prairie Provident is 1.96 times more volatile than McChip Resources. It trades about 0.09 of its potential returns per unit of risk. McChip Resources is currently generating about 0.05 per unit of risk. If you would invest  4.00  in Prairie Provident Resources on October 25, 2024 and sell it today you would earn a total of  1.00  from holding Prairie Provident Resources or generate 25.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Prairie Provident Resources  vs.  McChip Resources

Prairie Provident

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prairie Provident Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Prairie Provident displayed solid returns over the last few months and may actually be approaching a breakup point.

McChip Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in McChip Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, McChip Resources showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prairie Provident and McChip Resources

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

The idea behind Prairie Provident Resources and McChip Resources 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.