Correlation Between Potash America and VizConnect

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

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

Diversification Opportunities for Potash America and VizConnect

0.06

Correlation Coefficient

Potash America  VizConnect

Significant diversification

The 3 months correlation between Potash and VizConnect is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Potash America and VizConnect in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VizConnect 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 VizConnect. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VizConnect has no effect on the direction of Potash America i.e., Potash America and VizConnect go up and down completely randomly.

Pair Corralation between Potash America and VizConnect

Given the investment horizon of 90 days Potash America is expected to generate 35.18 times less return on investment than VizConnect. But when comparing it to its historical volatility, Potash America is 2.88 times less risky than VizConnect. It trades about 0.01 of its potential returns per unit of risk. VizConnect is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  0.03  in VizConnect on September 12, 2024 and sell it today you would earn a total of  0.02  from holding VizConnect or generate 66.67% return on investment over 90 days.

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

Potash America  vs.  VizConnect

Potash America

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Potash America has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Potash America is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

VizConnect

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VizConnect are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, VizConnect exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Potash America and VizConnect

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

The idea behind Potash America and VizConnect 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.