Correlation Between West African and Irving Resources

Can any of the company-specific risk be diversified away by investing in both West African and Irving 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 West African and Irving Resources 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 Irving Resources, you can compare the effects of market volatilities on West African and Irving 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 West African with a short position of Irving Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of West African and Irving Resources.

Diversification Opportunities for West African and Irving Resources

0.22

Correlation Coefficient

West African  Irving Resources

Modest diversification

The 3 months correlation between West and Irving is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding West African Resources and Irving Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Irving Resources 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 Irving Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Irving Resources has no effect on the direction of West African i.e., West African and Irving Resources go up and down completely randomly.

Pair Corralation between West African and Irving Resources

Assuming the 90 days horizon West African Resources is expected to generate 1.87 times more return on investment than Irving Resources. However, West African is 1.87 times more volatile than Irving Resources. It trades about 0.07 of its potential returns per unit of risk. Irving Resources is currently generating about -0.01 per unit of risk. If you would invest  59.00  in West African Resources on September 2, 2024 and sell it today you would earn a total of  32.00  from holding West African Resources or generate 54.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.47%
Values	Daily Returns

West African Resources  vs.  Irving Resources

West African Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days West African Resources has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Irving Resources

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with West African and Irving Resources

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

The idea behind West African Resources and Irving 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.