Correlation Between West Red and Tonogold Resources

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

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

Diversification Opportunities for West Red and Tonogold Resources

0.63

Correlation Coefficient

West Red  Tonogold Resources

Poor diversification

The 3 months correlation between West and Tonogold is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding West Red Lake and Tonogold Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tonogold Resources and West Red 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 Red Lake are associated (or correlated) with Tonogold Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tonogold Resources has no effect on the direction of West Red i.e., West Red and Tonogold Resources go up and down completely randomly.

Pair Corralation between West Red and Tonogold Resources

Assuming the 90 days horizon West Red is expected to generate 4.86 times less return on investment than Tonogold Resources. But when comparing it to its historical volatility, West Red Lake is 2.68 times less risky than Tonogold Resources. It trades about 0.04 of its potential returns per unit of risk. Tonogold Resources is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1.60  in Tonogold Resources on October 22, 2024 and sell it today you would earn a total of  0.02  from holding Tonogold Resources or generate 1.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.94%
Values	Daily Returns

West Red Lake  vs.  Tonogold Resources

West Red Lake

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days West Red Lake has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Tonogold Resources

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tonogold Resources are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile technical and fundamental indicators, Tonogold Resources disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with West Red and Tonogold Resources

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

The idea behind West Red Lake and Tonogold 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.