Correlation Between Prime Mining and Commerce Resources

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

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

Diversification Opportunities for Prime Mining and Commerce Resources

0.82

Correlation Coefficient

Prime Mining  Commerce Resources

Very poor diversification

The 3 months correlation between Prime and Commerce is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Prime Mining Corp and Commerce Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commerce Resources Corp and Prime Mining 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 Prime Mining Corp are associated (or correlated) with Commerce Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commerce Resources Corp has no effect on the direction of Prime Mining i.e., Prime Mining and Commerce Resources go up and down completely randomly.

Pair Corralation between Prime Mining and Commerce Resources

Assuming the 90 days horizon Prime Mining is expected to generate 1.38 times less return on investment than Commerce Resources. But when comparing it to its historical volatility, Prime Mining Corp is 1.62 times less risky than Commerce Resources. It trades about 0.03 of its potential returns per unit of risk. Commerce Resources Corp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  8.00  in Commerce Resources Corp on September 12, 2024 and sell it today you would lose (2.48) from holding Commerce Resources Corp or give up 31.0% of portfolio value over 90 days.

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

Prime Mining Corp  vs.  Commerce Resources Corp

Prime Mining Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Prime Mining Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Prime Mining reported solid returns over the last few months and may actually be approaching a breakup point.

Commerce Resources Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Commerce Resources Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Commerce Resources is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Prime Mining and Commerce Resources

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

The idea behind Prime Mining Corp and Commerce Resources 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.