Correlation Between Potash America and Blue Diamond

Can any of the company-specific risk be diversified away by investing in both Potash America and Blue Diamond 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 Potash America and Blue Diamond into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Potash America and Blue Diamond Ventures, you can compare the effects of market volatilities on Potash America and Blue Diamond 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 Potash America with a short position of Blue Diamond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Potash America and Blue Diamond.

Diversification Opportunities for Potash America and Blue Diamond

-0.27

Correlation Coefficient

Potash America  Blue Diamond

Very good diversification

The 3 months correlation between Potash and Blue is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Potash America and Blue Diamond Ventures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Diamond Ventures and Potash America 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 Potash America are associated (or correlated) with Blue Diamond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Diamond Ventures has no effect on the direction of Potash America i.e., Potash America and Blue Diamond go up and down completely randomly.

Pair Corralation between Potash America and Blue Diamond

Given the investment horizon of 90 days Potash America is expected to generate 1.64 times less return on investment than Blue Diamond. But when comparing it to its historical volatility, Potash America is 1.74 times less risky than Blue Diamond. It trades about 0.19 of its potential returns per unit of risk. Blue Diamond Ventures is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  0.01  in Blue Diamond Ventures on December 27, 2024 and sell it today you would earn a total of  0.00  from holding Blue Diamond Ventures or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Potash America  vs.  Blue Diamond Ventures

Potash America

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Potash America are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Potash America displayed solid returns over the last few months and may actually be approaching a breakup point.

Blue Diamond Ventures

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Diamond Ventures are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, Blue Diamond showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Potash America and Blue Diamond

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

The idea behind Potash America and Blue Diamond Ventures 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.