Correlation Between South Pacific and Energy Fuels

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

Diversification Opportunities for South Pacific and Energy Fuels

0.36

Correlation Coefficient

South Pacific  Energy Fuels

Weak diversification

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

Pair Corralation between South Pacific and Energy Fuels

Assuming the 90 days trading horizon South Pacific Metals is expected to generate 1.22 times more return on investment than Energy Fuels. However, South Pacific is 1.22 times more volatile than Energy Fuels. It trades about 0.05 of its potential returns per unit of risk. Energy Fuels is currently generating about -0.09 per unit of risk. If you would invest  45.00  in South Pacific Metals on December 22, 2024 and sell it today you would earn a total of  3.00  from holding South Pacific Metals or generate 6.67% return on investment over 90 days.

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

South Pacific Metals  vs.  Energy Fuels

South Pacific Metals

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in South Pacific Metals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain primary indicators, South Pacific may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Energy Fuels

Risk-Adjusted Performance

Very Weak

Over the last 90 days Energy Fuels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with South Pacific and Energy Fuels

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

The idea behind South Pacific Metals and Energy Fuels 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.