Correlation Between Power Metals and Infinite Ore

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

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

Diversification Opportunities for Power Metals and Infinite Ore

0.64

Correlation Coefficient

Power Metals  Infinite Ore

Poor diversification

The 3 months correlation between Power and Infinite is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Power Metals Corp and Infinite Ore Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Infinite Ore Corp and Power Metals 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 Power Metals Corp are associated (or correlated) with Infinite Ore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Infinite Ore Corp has no effect on the direction of Power Metals i.e., Power Metals and Infinite Ore go up and down completely randomly.

Pair Corralation between Power Metals and Infinite Ore

Assuming the 90 days horizon Power Metals Corp is expected to generate 1.36 times more return on investment than Infinite Ore. However, Power Metals is 1.36 times more volatile than Infinite Ore Corp. It trades about 0.28 of its potential returns per unit of risk. Infinite Ore Corp is currently generating about 0.01 per unit of risk. If you would invest  32.00  in Power Metals Corp on December 20, 2024 and sell it today you would earn a total of  64.00  from holding Power Metals Corp or generate 200.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Power Metals Corp  vs.  Infinite Ore Corp

Power Metals Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Power Metals Corp are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Power Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Infinite Ore Corp

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Power Metals and Infinite Ore

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

The idea behind Power Metals Corp and Infinite Ore 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.