Correlation Between Northern Superior and Red Pine

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

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

Diversification Opportunities for Northern Superior and Red Pine

0.08

Correlation Coefficient

Northern Superior  Red Pine

Significant diversification

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

Pair Corralation between Northern Superior and Red Pine

Assuming the 90 days horizon Northern Superior Resources is expected to generate 0.81 times more return on investment than Red Pine. However, Northern Superior Resources is 1.23 times less risky than Red Pine. It trades about 0.08 of its potential returns per unit of risk. Red Pine Exploration is currently generating about 0.02 per unit of risk. If you would invest  47.00  in Northern Superior Resources on October 7, 2024 and sell it today you would earn a total of  2.00  from holding Northern Superior Resources or generate 4.26% return on investment over 90 days.

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

Northern Superior Resources  vs.  Red Pine Exploration

Northern Superior

Risk-Adjusted Performance

0 of 100

Very Weak

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

Red Pine Exploration

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Red Pine Exploration has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Northern Superior and Red Pine

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

The idea behind Northern Superior Resources and Red Pine Exploration 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..