Correlation Between West African and Northern Star

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

Diversification Opportunities for West African and Northern Star

0.59

Correlation Coefficient

West African  Northern Star

Very weak diversification

The 3 months correlation between West and Northern is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding West African Resources and Northern Star Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Star 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 Northern Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Star Resources has no effect on the direction of West African i.e., West African and Northern Star go up and down completely randomly.

Pair Corralation between West African and Northern Star

Assuming the 90 days horizon West African Resources is expected to under-perform the Northern Star. In addition to that, West African is 2.0 times more volatile than Northern Star Resources. It trades about -0.02 of its total potential returns per unit of risk. Northern Star Resources is currently generating about 0.11 per unit of volatility. If you would invest  1,100  in Northern Star Resources on November 29, 2024 and sell it today you would earn a total of  46.00  from holding Northern Star Resources or generate 4.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

West African Resources  vs.  Northern Star Resources

West African Resources

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in West African Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, West African may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Northern Star Resources

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Star Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Northern Star may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with West African and Northern Star

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

The idea behind West African Resources and Northern Star 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.