Correlation Between Desert Mountain and CGX Energy

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

By analyzing existing cross correlation between Desert Mountain Energy and CGX Energy, you can compare the effects of market volatilities on Desert Mountain and CGX Energy 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 Desert Mountain with a short position of CGX Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Desert Mountain and CGX Energy.

Diversification Opportunities for Desert Mountain and CGX Energy

-0.72

Correlation Coefficient

Desert Mountain  CGX Energy

Pay attention - limited upside

The 3 months correlation between Desert and CGX is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Desert Mountain Energy and CGX Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CGX Energy and Desert Mountain 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 Desert Mountain Energy are associated (or correlated) with CGX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CGX Energy has no effect on the direction of Desert Mountain i.e., Desert Mountain and CGX Energy go up and down completely randomly.

Pair Corralation between Desert Mountain and CGX Energy

Assuming the 90 days horizon Desert Mountain Energy is expected to under-perform the CGX Energy. But the otc stock apears to be less risky and, when comparing its historical volatility, Desert Mountain Energy is 1.28 times less risky than CGX Energy. The otc stock trades about -0.01 of its potential returns per unit of risk. The CGX Energy is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  11.00  in CGX Energy on September 12, 2024 and sell it today you would earn a total of  3.00  from holding CGX Energy or generate 27.27% return on investment over 90 days.

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

Desert Mountain Energy  vs.  CGX Energy

Desert Mountain Energy

Risk-Adjusted Performance

0 of 100

Very Weak

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

CGX Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CGX Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, CGX Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Desert Mountain and CGX Energy

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

The idea behind Desert Mountain Energy and CGX Energy 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.