Correlation Between Tectonic Metals and Red Pine

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

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

Diversification Opportunities for Tectonic Metals and Red Pine

0.49

Correlation Coefficient

Tectonic Metals  Red Pine

Very weak diversification

The 3 months correlation between Tectonic and Red is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Tectonic Metals 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 Tectonic Metals 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 Tectonic Metals 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 Tectonic Metals i.e., Tectonic Metals and Red Pine go up and down completely randomly.

Pair Corralation between Tectonic Metals and Red Pine

Assuming the 90 days horizon Tectonic Metals is expected to generate 0.89 times more return on investment than Red Pine. However, Tectonic Metals is 1.12 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 0.01 per unit of risk. If you would invest  3.29  in Tectonic Metals on November 29, 2024 and sell it today you would earn a total of  0.51  from holding Tectonic Metals or generate 15.5% return on investment over 90 days.

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

Tectonic Metals  vs.  Red Pine Exploration

Tectonic Metals

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tectonic Metals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tectonic Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Red Pine Exploration

Risk-Adjusted Performance

Weak

Over the last 90 days Red Pine Exploration has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Red Pine is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Tectonic Metals and Red Pine

The main advantage of trading using opposite Tectonic Metals and Red Pine positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tectonic Metals 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 Tectonic Metals 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..