Correlation Between Sierra Madre and Equity Metals

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

By analyzing existing cross correlation between Sierra Madre Gold and Equity Metals, you can compare the effects of market volatilities on Sierra Madre and Equity Metals 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 Sierra Madre with a short position of Equity Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sierra Madre and Equity Metals.

Diversification Opportunities for Sierra Madre and Equity Metals

0.63

Correlation Coefficient

Sierra Madre  Equity Metals

Poor diversification

The 3 months correlation between Sierra and Equity is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Sierra Madre Gold and Equity Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Metals and Sierra Madre 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 Sierra Madre Gold are associated (or correlated) with Equity Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Metals has no effect on the direction of Sierra Madre i.e., Sierra Madre and Equity Metals go up and down completely randomly.

Pair Corralation between Sierra Madre and Equity Metals

Assuming the 90 days horizon Sierra Madre Gold is expected to generate 0.83 times more return on investment than Equity Metals. However, Sierra Madre Gold is 1.21 times less risky than Equity Metals. It trades about 0.1 of its potential returns per unit of risk. Equity Metals is currently generating about 0.07 per unit of risk. If you would invest  32.00  in Sierra Madre Gold on December 29, 2024 and sell it today you would earn a total of  9.00  from holding Sierra Madre Gold or generate 28.13% return on investment over 90 days.

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

Sierra Madre Gold  vs.  Equity Metals

Sierra Madre Gold

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sierra Madre Gold are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sierra Madre reported solid returns over the last few months and may actually be approaching a breakup point.

Equity Metals

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Metals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Equity Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sierra Madre and Equity Metals

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

The idea behind Sierra Madre Gold and Equity Metals 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.