Correlation Between Western Investment and South Pacific

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

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

Diversification Opportunities for Western Investment and South Pacific

-0.85

Correlation Coefficient

Western Investment  South Pacific

Pay attention - limited upside

The 3 months correlation between Western and South is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Western Investment and South Pacific Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South Pacific Metals and Western Investment 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 Western Investment are associated (or correlated) with South Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South Pacific Metals has no effect on the direction of Western Investment i.e., Western Investment and South Pacific go up and down completely randomly.

Pair Corralation between Western Investment and South Pacific

Given the investment horizon of 90 days Western Investment is expected to generate 1.11 times more return on investment than South Pacific. However, Western Investment is 1.11 times more volatile than South Pacific Metals. It trades about 0.28 of its potential returns per unit of risk. South Pacific Metals is currently generating about -0.11 per unit of risk. If you would invest  49.00  in Western Investment on October 17, 2024 and sell it today you would earn a total of  10.00  from holding Western Investment or generate 20.41% return on investment over 90 days.

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

Western Investment  vs.  South Pacific Metals

Western Investment

Risk-Adjusted Performance

13 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Western Investment are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Western Investment showed solid returns over the last few months and may actually be approaching a breakup point.

South Pacific Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days South Pacific Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's primary indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Western Investment and South Pacific

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

The idea behind Western Investment and South Pacific Metals 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.