Correlation Between Red Pine and Sirios Resources

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

By analyzing existing cross correlation between Red Pine Exploration and Sirios Resources, you can compare the effects of market volatilities on Red Pine and Sirios Resources 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 Red Pine with a short position of Sirios Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Red Pine and Sirios Resources.

Diversification Opportunities for Red Pine and Sirios Resources

0.32

Correlation Coefficient

Red Pine  Sirios Resources

Weak diversification

The 3 months correlation between Red and Sirios is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Red Pine Exploration and Sirios Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sirios Resources and Red Pine 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 Red Pine Exploration are associated (or correlated) with Sirios Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sirios Resources has no effect on the direction of Red Pine i.e., Red Pine and Sirios Resources go up and down completely randomly.

Pair Corralation between Red Pine and Sirios Resources

Assuming the 90 days horizon Red Pine Exploration is expected to generate 0.73 times more return on investment than Sirios Resources. However, Red Pine Exploration is 1.37 times less risky than Sirios Resources. It trades about 0.05 of its potential returns per unit of risk. Sirios Resources is currently generating about 0.01 per unit of risk. If you would invest  8.20  in Red Pine Exploration on December 25, 2024 and sell it today you would earn a total of  0.69  from holding Red Pine Exploration or generate 8.41% return on investment over 90 days.

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

Red Pine Exploration  vs.  Sirios Resources

Red Pine Exploration

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Red Pine Exploration are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Red Pine reported solid returns over the last few months and may actually be approaching a breakup point.

Sirios Resources

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Red Pine and Sirios Resources

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

The idea behind Red Pine Exploration and Sirios 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.