Correlation Between South Pacific and Canaf Investments

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

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

Diversification Opportunities for South Pacific and Canaf Investments

0.08

Correlation Coefficient

South Pacific  Canaf Investments

Significant diversification

The 3 months correlation between South and Canaf is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding South Pacific Metals and Canaf Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canaf Investments and South Pacific 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 South Pacific Metals are associated (or correlated) with Canaf Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canaf Investments has no effect on the direction of South Pacific i.e., South Pacific and Canaf Investments go up and down completely randomly.

Pair Corralation between South Pacific and Canaf Investments

Assuming the 90 days trading horizon South Pacific Metals is expected to generate 2.83 times more return on investment than Canaf Investments. However, South Pacific is 2.83 times more volatile than Canaf Investments. It trades about 0.03 of its potential returns per unit of risk. Canaf Investments is currently generating about 0.09 per unit of risk. If you would invest  80.00  in South Pacific Metals on October 26, 2024 and sell it today you would lose (29.00) from holding South Pacific Metals or give up 36.25% of portfolio value over 90 days.

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

South Pacific Metals  vs.  Canaf Investments

South Pacific Metals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Canaf Investments

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with South Pacific and Canaf Investments

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

The idea behind South Pacific Metals and Canaf Investments 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.