Correlation Between Western Mining and Rising Nonferrous

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

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

Diversification Opportunities for Western Mining and Rising Nonferrous

0.83

Correlation Coefficient

Western Mining  Rising Nonferrous

Very poor diversification

The 3 months correlation between Western and Rising is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Western Mining Co and Rising Nonferrous Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rising Nonferrous Metals and Western Mining 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 Mining Co are associated (or correlated) with Rising Nonferrous. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rising Nonferrous Metals has no effect on the direction of Western Mining i.e., Western Mining and Rising Nonferrous go up and down completely randomly.

Pair Corralation between Western Mining and Rising Nonferrous

Assuming the 90 days trading horizon Western Mining Co is expected to under-perform the Rising Nonferrous. But the stock apears to be less risky and, when comparing its historical volatility, Western Mining Co is 1.5 times less risky than Rising Nonferrous. The stock trades about -0.24 of its potential returns per unit of risk. The Rising Nonferrous Metals is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  3,200  in Rising Nonferrous Metals on September 5, 2024 and sell it today you would lose (96.00) from holding Rising Nonferrous Metals or give up 3.0% of portfolio value over 90 days.

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

Western Mining Co  vs.  Rising Nonferrous Metals

Western Mining

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Mining Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Western Mining sustained solid returns over the last few months and may actually be approaching a breakup point.

Rising Nonferrous Metals

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rising Nonferrous Metals are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Rising Nonferrous sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Mining and Rising Nonferrous

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

The idea behind Western Mining Co and Rising Nonferrous 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.