Correlation Between Compania and Riverside Resources

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

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

Diversification Opportunities for Compania and Riverside Resources

0.45

Correlation Coefficient

Compania  Riverside Resources

Very weak diversification

The 3 months correlation between Compania and Riverside is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Compania de Minas and Riverside Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Riverside Resources and Compania 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 Compania de Minas are associated (or correlated) with Riverside Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Riverside Resources has no effect on the direction of Compania i.e., Compania and Riverside Resources go up and down completely randomly.

Pair Corralation between Compania and Riverside Resources

Considering the 90-day investment horizon Compania de Minas is expected to under-perform the Riverside Resources. But the stock apears to be less risky and, when comparing its historical volatility, Compania de Minas is 1.99 times less risky than Riverside Resources. The stock trades about -0.03 of its potential returns per unit of risk. The Riverside Resources is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  10.00  in Riverside Resources on September 23, 2024 and sell it today you would lose (1.00) from holding Riverside Resources or give up 10.0% of portfolio value over 90 days.

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

Compania de Minas  vs.  Riverside Resources

Compania de Minas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Compania de Minas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Compania is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Riverside Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Riverside Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Riverside Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Compania and Riverside Resources

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

The idea behind Compania de Minas and Riverside 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.