Correlation Between Red Oak and Sitka Gold

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

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

Diversification Opportunities for Red Oak and Sitka Gold

-0.08

Correlation Coefficient

Red Oak  Sitka Gold

Good diversification

The 3 months correlation between Red and Sitka is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Red Oak Technology and Sitka Gold Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sitka Gold Corp and Red Oak 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 Oak Technology are associated (or correlated) with Sitka Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sitka Gold Corp has no effect on the direction of Red Oak i.e., Red Oak and Sitka Gold go up and down completely randomly.

Pair Corralation between Red Oak and Sitka Gold

Assuming the 90 days horizon Red Oak is expected to generate 4.88 times less return on investment than Sitka Gold. But when comparing it to its historical volatility, Red Oak Technology is 5.23 times less risky than Sitka Gold. It trades about 0.08 of its potential returns per unit of risk. Sitka Gold Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  11.00  in Sitka Gold Corp on October 5, 2024 and sell it today you would earn a total of  15.00  from holding Sitka Gold Corp or generate 136.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.68%
Values	Daily Returns

Red Oak Technology  vs.  Sitka Gold Corp

Red Oak Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Red Oak Technology has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Red Oak is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sitka Gold Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sitka Gold Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking signals, Sitka Gold 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 Oak and Sitka Gold

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

The idea behind Red Oak Technology and Sitka Gold 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.

Check out your portfolio center.

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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.