Correlation Between Red Pine and Nouveau Monde

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

Diversification Opportunities for Red Pine and Nouveau Monde

-0.18

Correlation Coefficient

Red Pine  Nouveau Monde

Good diversification

The 3 months correlation between Red and Nouveau is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Red Pine Exploration and Nouveau Monde Graphite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nouveau Monde 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 Nouveau Monde. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nouveau Monde Graphite has no effect on the direction of Red Pine i.e., Red Pine and Nouveau Monde go up and down completely randomly.

Pair Corralation between Red Pine and Nouveau Monde

Assuming the 90 days horizon Red Pine Exploration is expected to generate 1.62 times more return on investment than Nouveau Monde. However, Red Pine is 1.62 times more volatile than Nouveau Monde Graphite. It trades about 0.0 of its potential returns per unit of risk. Nouveau Monde Graphite is currently generating about -0.01 per unit of risk. If you would invest  41.00  in Red Pine Exploration on October 21, 2024 and sell it today you would lose (29.00) from holding Red Pine Exploration or give up 70.73% of portfolio value over 90 days.

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

Red Pine Exploration  vs.  Nouveau Monde Graphite

Red Pine Exploration

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Red Pine Exploration has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Nouveau Monde Graphite

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nouveau Monde Graphite are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Nouveau Monde showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Red Pine and Nouveau Monde

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

The idea behind Red Pine Exploration and Nouveau Monde 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.