Correlation Between Canadian Palladium and African Rainbow

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

By analyzing existing cross correlation between Canadian Palladium Resources and African Rainbow Minerals, you can compare the effects of market volatilities on Canadian Palladium and African Rainbow 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 Canadian Palladium with a short position of African Rainbow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Palladium and African Rainbow.

Diversification Opportunities for Canadian Palladium and African Rainbow

-0.43

Correlation Coefficient

Canadian Palladium  African Rainbow

Very good diversification

The 3 months correlation between Canadian and African is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Palladium Resources and African Rainbow Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on African Rainbow Minerals and Canadian Palladium 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 Canadian Palladium Resources are associated (or correlated) with African Rainbow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of African Rainbow Minerals has no effect on the direction of Canadian Palladium i.e., Canadian Palladium and African Rainbow go up and down completely randomly.

Pair Corralation between Canadian Palladium and African Rainbow

If you would invest  6.16  in Canadian Palladium Resources on September 14, 2024 and sell it today you would lose (1.37) from holding Canadian Palladium Resources or give up 22.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	1.59%
Values	Daily Returns

Canadian Palladium Resources  vs.  African Rainbow Minerals

Canadian Palladium

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Palladium Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Canadian Palladium reported solid returns over the last few months and may actually be approaching a breakup point.

African Rainbow Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Canadian Palladium and African Rainbow

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

The idea behind Canadian Palladium Resources and African Rainbow Minerals 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.