Correlation Between West African and Evolution Mining

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

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

Diversification Opportunities for West African and Evolution Mining

0.2

Correlation Coefficient

West African  Evolution Mining

Modest diversification

The 3 months correlation between West and Evolution is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding West African Resources and Evolution Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution Mining and West African 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 West African Resources are associated (or correlated) with Evolution Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution Mining has no effect on the direction of West African i.e., West African and Evolution Mining go up and down completely randomly.

Pair Corralation between West African and Evolution Mining

Assuming the 90 days horizon West African is expected to generate 2.7 times less return on investment than Evolution Mining. In addition to that, West African is 1.51 times more volatile than Evolution Mining. It trades about 0.01 of its total potential returns per unit of risk. Evolution Mining is currently generating about 0.06 per unit of volatility. If you would invest  290.00  in Evolution Mining on August 30, 2024 and sell it today you would earn a total of  26.00  from holding Evolution Mining or generate 8.97% return on investment over 90 days.

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

West African Resources  vs.  Evolution Mining

West African Resources

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in West African Resources are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, West African is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Evolution Mining

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Evolution Mining are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Evolution Mining may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with West African and Evolution Mining

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

The idea behind West African Resources and Evolution Mining 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.