Correlation Between Red Hill and Computershare

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

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

Diversification Opportunities for Red Hill and Computershare

0.87

Correlation Coefficient

Red Hill  Computershare

Very poor diversification

The 3 months correlation between Red and Computershare is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Red Hill Iron and Computershare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Computershare and Red Hill 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 Hill Iron are associated (or correlated) with Computershare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Computershare has no effect on the direction of Red Hill i.e., Red Hill and Computershare go up and down completely randomly.

Pair Corralation between Red Hill and Computershare

Assuming the 90 days trading horizon Red Hill is expected to generate 3.68 times less return on investment than Computershare. In addition to that, Red Hill is 1.03 times more volatile than Computershare. It trades about 0.04 of its total potential returns per unit of risk. Computershare is currently generating about 0.16 per unit of volatility. If you would invest  3,211  in Computershare on September 25, 2024 and sell it today you would earn a total of  172.00  from holding Computershare or generate 5.36% return on investment over 90 days.

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

Red Hill Iron  vs.  Computershare

Red Hill Iron

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Red Hill Iron are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Red Hill unveiled solid returns over the last few months and may actually be approaching a breakup point.

Computershare

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Computershare are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Computershare unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Red Hill and Computershare

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

The idea behind Red Hill Iron and Computershare 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.