Correlation Between ROK Resources and Headwater Exploration

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

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

Diversification Opportunities for ROK Resources and Headwater Exploration

0.61

Correlation Coefficient

ROK Resources  Headwater Exploration

Poor diversification

The 3 months correlation between ROK and Headwater is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding ROK Resources and Headwater Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Headwater Exploration and ROK Resources 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 ROK Resources are associated (or correlated) with Headwater Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Headwater Exploration has no effect on the direction of ROK Resources i.e., ROK Resources and Headwater Exploration go up and down completely randomly.

Pair Corralation between ROK Resources and Headwater Exploration

Assuming the 90 days horizon ROK Resources is expected to under-perform the Headwater Exploration. In addition to that, ROK Resources is 2.09 times more volatile than Headwater Exploration. It trades about -0.01 of its total potential returns per unit of risk. Headwater Exploration is currently generating about -0.01 per unit of volatility. If you would invest  459.00  in Headwater Exploration on December 29, 2024 and sell it today you would lose (10.00) from holding Headwater Exploration or give up 2.18% of portfolio value over 90 days.

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

ROK Resources  vs.  Headwater Exploration

ROK Resources

Risk-Adjusted Performance

Very Weak

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

Headwater Exploration

Risk-Adjusted Performance

Very Weak

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

Pair Trading with ROK Resources and Headwater Exploration

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

The idea behind ROK Resources and Headwater Exploration 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 Commodity Directory module to find actively traded commodities issued by global exchanges.