Correlation Between Scottie Resources and Gem Diamonds

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

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

Diversification Opportunities for Scottie Resources and Gem Diamonds

0.36

Correlation Coefficient

Scottie Resources  Gem Diamonds

Weak diversification

The 3 months correlation between Scottie and Gem is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Scottie Resources Corp and Gem Diamonds Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gem Diamonds Limited and Scottie 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 Scottie Resources Corp are associated (or correlated) with Gem Diamonds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gem Diamonds Limited has no effect on the direction of Scottie Resources i.e., Scottie Resources and Gem Diamonds go up and down completely randomly.

Pair Corralation between Scottie Resources and Gem Diamonds

Assuming the 90 days horizon Scottie Resources Corp is expected to under-perform the Gem Diamonds. But the otc stock apears to be less risky and, when comparing its historical volatility, Scottie Resources Corp is 1.41 times less risky than Gem Diamonds. The otc stock trades about 0.0 of its potential returns per unit of risk. The Gem Diamonds Limited is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  13.00  in Gem Diamonds Limited on December 1, 2024 and sell it today you would earn a total of  3.00  from holding Gem Diamonds Limited or generate 23.08% return on investment over 90 days.

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

Scottie Resources Corp  vs.  Gem Diamonds Limited

Scottie Resources Corp

Risk-Adjusted Performance

Very Weak

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

Gem Diamonds Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gem Diamonds Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Gem Diamonds reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Scottie Resources and Gem Diamonds

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

The idea behind Scottie Resources Corp and Gem Diamonds Limited 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 Transaction History module to view history of all your transactions and understand their impact on performance.