Correlation Between Red Pine and Focus Graphite

Can any of the company-specific risk be diversified away by investing in both Red Pine and Focus Graphite 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 Focus Graphite 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 Focus Graphite, you can compare the effects of market volatilities on Red Pine and Focus Graphite 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 Focus Graphite. Check out your portfolio center. Please also check ongoing floating volatility patterns of Red Pine and Focus Graphite.

Diversification Opportunities for Red Pine and Focus Graphite

0.56

Correlation Coefficient

Red Pine  Focus Graphite

Very weak diversification

The 3 months correlation between Red and Focus is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Red Pine Exploration and Focus Graphite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Focus Graphite 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 Focus Graphite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Focus Graphite has no effect on the direction of Red Pine i.e., Red Pine and Focus Graphite go up and down completely randomly.

Pair Corralation between Red Pine and Focus Graphite

Assuming the 90 days horizon Red Pine Exploration is expected to generate 0.82 times more return on investment than Focus Graphite. However, Red Pine Exploration is 1.22 times less risky than Focus Graphite. It trades about 0.03 of its potential returns per unit of risk. Focus Graphite is currently generating about 0.01 per unit of risk. If you would invest  12.00  in Red Pine Exploration on December 27, 2024 and sell it today you would earn a total of  0.00  from holding Red Pine Exploration or generate 0.0% return on investment over 90 days.

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

Red Pine Exploration  vs.  Focus Graphite

Red Pine Exploration

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Red Pine Exploration are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Red Pine may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Focus Graphite

Risk-Adjusted Performance

Very Weak

Over the last 90 days Focus Graphite has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Focus Graphite is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Red Pine and Focus Graphite

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

The idea behind Red Pine Exploration and Focus Graphite 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 Channel module to use Commodity Channel Index to analyze current equity momentum.