Correlation Between Encounter Resources and Superior Resources

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

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

Diversification Opportunities for Encounter Resources and Superior Resources

0.58

Correlation Coefficient

Encounter Resources  Superior Resources

Very weak diversification

The 3 months correlation between Encounter and Superior is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Encounter Resources and Superior Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Superior Resources and Encounter Resources 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 Encounter Resources are associated (or correlated) with Superior Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Superior Resources has no effect on the direction of Encounter Resources i.e., Encounter Resources and Superior Resources go up and down completely randomly.

Pair Corralation between Encounter Resources and Superior Resources

Assuming the 90 days trading horizon Encounter Resources is expected to generate 0.66 times more return on investment than Superior Resources. However, Encounter Resources is 1.5 times less risky than Superior Resources. It trades about -0.06 of its potential returns per unit of risk. Superior Resources is currently generating about -0.06 per unit of risk. If you would invest  46.00  in Encounter Resources on September 12, 2024 and sell it today you would lose (10.00) from holding Encounter Resources or give up 21.74% of portfolio value over 90 days.

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

Encounter Resources  vs.  Superior Resources

Encounter Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Encounter Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Superior Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Superior Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Encounter Resources and Superior Resources

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

The idea behind Encounter Resources and Superior 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.