Correlation Between Resource Base and Chilwa Minerals

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

By analyzing existing cross correlation between Resource Base and Chilwa Minerals Limited, you can compare the effects of market volatilities on Resource Base and Chilwa Minerals 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 Resource Base with a short position of Chilwa Minerals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Resource Base and Chilwa Minerals.

Diversification Opportunities for Resource Base and Chilwa Minerals

-0.03

Correlation Coefficient

Resource Base  Chilwa Minerals

Good diversification

The 3 months correlation between Resource and Chilwa is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Resource Base and Chilwa Minerals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chilwa Minerals and Resource Base 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 Resource Base are associated (or correlated) with Chilwa Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chilwa Minerals has no effect on the direction of Resource Base i.e., Resource Base and Chilwa Minerals go up and down completely randomly.

Pair Corralation between Resource Base and Chilwa Minerals

Assuming the 90 days trading horizon Resource Base is expected to under-perform the Chilwa Minerals. But the stock apears to be less risky and, when comparing its historical volatility, Resource Base is 1.08 times less risky than Chilwa Minerals. The stock trades about -0.03 of its potential returns per unit of risk. The Chilwa Minerals Limited is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  73.00  in Chilwa Minerals Limited on December 30, 2024 and sell it today you would earn a total of  2.00  from holding Chilwa Minerals Limited or generate 2.74% return on investment over 90 days.

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

Resource Base  vs.  Chilwa Minerals Limited

Resource Base

Risk-Adjusted Performance

Very Weak

Over the last 90 days Resource Base has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Resource Base is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Chilwa Minerals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Chilwa Minerals Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Chilwa Minerals is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Resource Base and Chilwa Minerals

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

The idea behind Resource Base and Chilwa Minerals Limited 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.