Correlation Between Tree Island and Plata Latina

Can any of the company-specific risk be diversified away by investing in both Tree Island and Plata Latina 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 Tree Island and Plata Latina into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tree Island Steel and Plata Latina Minerals, you can compare the effects of market volatilities on Tree Island and Plata Latina 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 Tree Island with a short position of Plata Latina. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tree Island and Plata Latina.

Diversification Opportunities for Tree Island and Plata Latina

-0.08

Correlation Coefficient

Tree Island  Plata Latina

Good diversification

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

Pair Corralation between Tree Island and Plata Latina

Assuming the 90 days trading horizon Tree Island is expected to generate 347.22 times less return on investment than Plata Latina. But when comparing it to its historical volatility, Tree Island Steel is 9.23 times less risky than Plata Latina. It trades about 0.0 of its potential returns per unit of risk. Plata Latina Minerals is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2.00  in Plata Latina Minerals on October 7, 2024 and sell it today you would lose (1.00) from holding Plata Latina Minerals or give up 50.0% of portfolio value over 90 days.

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

Tree Island Steel  vs.  Plata Latina Minerals

Tree Island Steel

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tree Island Steel are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating essential indicators, Tree Island may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Plata Latina Minerals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Plata Latina Minerals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Plata Latina showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tree Island and Plata Latina

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

The idea behind Tree Island Steel and Plata Latina Minerals 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.