Correlation Between Tower Resources and Rockridge Resources

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

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

Diversification Opportunities for Tower Resources and Rockridge Resources

-0.32

Correlation Coefficient

Tower Resources  Rockridge Resources

Very good diversification

The 3 months correlation between Tower and Rockridge is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Tower Resources and Rockridge Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rockridge Resources and Tower 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 Tower Resources are associated (or correlated) with Rockridge Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rockridge Resources has no effect on the direction of Tower Resources i.e., Tower Resources and Rockridge Resources go up and down completely randomly.

Pair Corralation between Tower Resources and Rockridge Resources

Assuming the 90 days horizon Tower Resources is expected to under-perform the Rockridge Resources. But the pink sheet apears to be less risky and, when comparing its historical volatility, Tower Resources is 2.64 times less risky than Rockridge Resources. The pink sheet trades about 0.0 of its potential returns per unit of risk. The Rockridge Resources is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  0.78  in Rockridge Resources on December 22, 2024 and sell it today you would earn a total of  0.33  from holding Rockridge Resources or generate 42.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	40.0%
Values	Daily Returns

Tower Resources  vs.  Rockridge Resources

Tower Resources

Risk-Adjusted Performance

Very Weak

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

Rockridge Resources

Risk-Adjusted Performance

Good

Over the last 90 days Rockridge Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile essential indicators, Rockridge Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tower Resources and Rockridge Resources

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

The idea behind Tower Resources and Rockridge Resources 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.