Correlation Between Resource Base and Northern Star

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

By analyzing existing cross correlation between Resource Base and Northern Star Resources, you can compare the effects of market volatilities on Resource Base and Northern Star 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 Northern Star. Check out your portfolio center. Please also check ongoing floating volatility patterns of Resource Base and Northern Star.

Diversification Opportunities for Resource Base and Northern Star

0.23

Correlation Coefficient

Resource Base  Northern Star

Modest diversification

The 3 months correlation between Resource and Northern is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Resource Base and Northern Star Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Star Resources 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 Northern Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Star Resources has no effect on the direction of Resource Base i.e., Resource Base and Northern Star go up and down completely randomly.

Pair Corralation between Resource Base and Northern Star

Assuming the 90 days trading horizon Resource Base is expected to generate 1.46 times more return on investment than Northern Star. However, Resource Base is 1.46 times more volatile than Northern Star Resources. It trades about 0.04 of its potential returns per unit of risk. Northern Star Resources is currently generating about -0.11 per unit of risk. If you would invest  3.50  in Resource Base on September 26, 2024 and sell it today you would earn a total of  0.10  from holding Resource Base or generate 2.86% return on investment over 90 days.

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

Resource Base  vs.  Northern Star Resources

Resource Base

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Resource Base are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Resource Base may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Northern Star Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Star Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Northern Star 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 Northern Star

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

The idea behind Resource Base and Northern Star Resources 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.