Correlation Between Trellus Health and Rockfire Resources

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

By analyzing existing cross correlation between Trellus Health plc and Rockfire Resources plc, you can compare the effects of market volatilities on Trellus Health and Rockfire Resources 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 Trellus Health with a short position of Rockfire Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Trellus Health and Rockfire Resources.

Diversification Opportunities for Trellus Health and Rockfire Resources

0.18

Correlation Coefficient

Trellus Health  Rockfire Resources

Average diversification

The 3 months correlation between Trellus and Rockfire is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Trellus Health plc and Rockfire Resources plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rockfire Resources plc and Trellus Health 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 Trellus Health plc are associated (or correlated) with Rockfire Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rockfire Resources plc has no effect on the direction of Trellus Health i.e., Trellus Health and Rockfire Resources go up and down completely randomly.

Pair Corralation between Trellus Health and Rockfire Resources

Assuming the 90 days trading horizon Trellus Health plc is expected to generate 6.69 times more return on investment than Rockfire Resources. However, Trellus Health is 6.69 times more volatile than Rockfire Resources plc. It trades about 0.11 of its potential returns per unit of risk. Rockfire Resources plc is currently generating about 0.1 per unit of risk. If you would invest  68.00  in Trellus Health plc on October 22, 2024 and sell it today you would earn a total of  172.00  from holding Trellus Health plc or generate 252.94% return on investment over 90 days.

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

Trellus Health plc  vs.  Rockfire Resources plc

Trellus Health plc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trellus Health plc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Trellus Health unveiled solid returns over the last few months and may actually be approaching a breakup point.

Rockfire Resources plc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rockfire Resources plc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Rockfire Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Trellus Health and Rockfire Resources

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

The idea behind Trellus Health plc and Rockfire Resources plc 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.

Check out your portfolio center.

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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.