Correlation Between Teck Resources and Encanto Potash

Can any of the company-specific risk be diversified away by investing in both Teck Resources and Encanto Potash 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 Teck Resources and Encanto Potash into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Teck Resources Ltd and Encanto Potash Corp, you can compare the effects of market volatilities on Teck Resources and Encanto Potash 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 Teck Resources with a short position of Encanto Potash. Check out your portfolio center. Please also check ongoing floating volatility patterns of Teck Resources and Encanto Potash.

Diversification Opportunities for Teck Resources and Encanto Potash

0.07

Correlation Coefficient

Teck Resources  Encanto Potash

Significant diversification

The 3 months correlation between Teck and Encanto is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Teck Resources Ltd and Encanto Potash Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encanto Potash Corp and Teck Resources 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 Teck Resources Ltd are associated (or correlated) with Encanto Potash. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encanto Potash Corp has no effect on the direction of Teck Resources i.e., Teck Resources and Encanto Potash go up and down completely randomly.

Pair Corralation between Teck Resources and Encanto Potash

Given the investment horizon of 90 days Teck Resources is expected to generate 29.67 times less return on investment than Encanto Potash. But when comparing it to its historical volatility, Teck Resources Ltd is 9.51 times less risky than Encanto Potash. It trades about 0.04 of its potential returns per unit of risk. Encanto Potash Corp is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1.24  in Encanto Potash Corp on December 25, 2024 and sell it today you would earn a total of  2.16  from holding Encanto Potash Corp or generate 174.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Teck Resources Ltd  vs.  Encanto Potash Corp

Teck Resources

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Teck Resources Ltd are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Teck Resources is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Encanto Potash Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Encanto Potash Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Encanto Potash reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Teck Resources and Encanto Potash

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

The idea behind Teck Resources Ltd and Encanto Potash Corp 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.