Correlation Between Sandfire Resources and Emerald Resources

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

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

Diversification Opportunities for Sandfire Resources and Emerald Resources

0.66

Correlation Coefficient

Sandfire Resources  Emerald Resources

Poor diversification

The 3 months correlation between Sandfire and Emerald is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Sandfire Resources NL and Emerald Resources NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerald Resources and Sandfire 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 Sandfire Resources NL are associated (or correlated) with Emerald Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerald Resources has no effect on the direction of Sandfire Resources i.e., Sandfire Resources and Emerald Resources go up and down completely randomly.

Pair Corralation between Sandfire Resources and Emerald Resources

Assuming the 90 days trading horizon Sandfire Resources NL is expected to generate 0.9 times more return on investment than Emerald Resources. However, Sandfire Resources NL is 1.12 times less risky than Emerald Resources. It trades about 0.12 of its potential returns per unit of risk. Emerald Resources NL is currently generating about 0.1 per unit of risk. If you would invest  939.00  in Sandfire Resources NL on December 28, 2024 and sell it today you would earn a total of  141.00  from holding Sandfire Resources NL or generate 15.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Sandfire Resources NL  vs.  Emerald Resources NL

Sandfire Resources

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sandfire Resources NL are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sandfire Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Emerald Resources

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Emerald Resources NL are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Emerald Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sandfire Resources and Emerald Resources

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

The idea behind Sandfire Resources NL and Emerald Resources NL 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.