Correlation Between South Pacific and Maple Leaf

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

Diversification Opportunities for South Pacific and Maple Leaf

0.56

Correlation Coefficient

South Pacific  Maple Leaf

Very weak diversification

The 3 months correlation between South and Maple is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding South Pacific Metals and Maple Leaf Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maple Leaf Foods 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 Maple Leaf. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maple Leaf Foods has no effect on the direction of South Pacific i.e., South Pacific and Maple Leaf go up and down completely randomly.

Pair Corralation between South Pacific and Maple Leaf

Assuming the 90 days trading horizon South Pacific Metals is expected to generate 2.74 times more return on investment than Maple Leaf. However, South Pacific is 2.74 times more volatile than Maple Leaf Foods. It trades about -0.07 of its potential returns per unit of risk. Maple Leaf Foods is currently generating about -0.46 per unit of risk. If you would invest  53.00  in South Pacific Metals on October 12, 2024 and sell it today you would lose (3.00) from holding South Pacific Metals or give up 5.66% of portfolio value over 90 days.

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

South Pacific Metals  vs.  Maple Leaf Foods

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 recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Maple Leaf Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Maple Leaf Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with South Pacific and Maple Leaf

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

The idea behind South Pacific Metals and Maple Leaf Foods 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.