Correlation Between First Majestic and Big Ridge

Can any of the company-specific risk be diversified away by investing in both First Majestic and Big Ridge 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 First Majestic and Big Ridge into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Majestic Silver and Big Ridge Gold, you can compare the effects of market volatilities on First Majestic and Big Ridge 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 First Majestic with a short position of Big Ridge. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Majestic and Big Ridge.

Diversification Opportunities for First Majestic and Big Ridge

0.86

Correlation Coefficient

First Majestic  Big Ridge

Very poor diversification

The 3 months correlation between First and Big is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding First Majestic Silver and Big Ridge Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big Ridge Gold and First Majestic 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 First Majestic Silver are associated (or correlated) with Big Ridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big Ridge Gold has no effect on the direction of First Majestic i.e., First Majestic and Big Ridge go up and down completely randomly.

Pair Corralation between First Majestic and Big Ridge

Assuming the 90 days horizon First Majestic is expected to generate 1.8 times less return on investment than Big Ridge. But when comparing it to its historical volatility, First Majestic Silver is 2.02 times less risky than Big Ridge. It trades about 0.14 of its potential returns per unit of risk. Big Ridge Gold is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  6.00  in Big Ridge Gold on September 5, 2024 and sell it today you would earn a total of  3.50  from holding Big Ridge Gold or generate 58.33% return on investment over 90 days.

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

First Majestic Silver  vs.  Big Ridge Gold

First Majestic Silver

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Majestic Silver are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, First Majestic displayed solid returns over the last few months and may actually be approaching a breakup point.

Big Ridge Gold

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Big Ridge Gold are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Big Ridge showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Majestic and Big Ridge

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

The idea behind First Majestic Silver and Big Ridge Gold 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.