Correlation Between G8 Education and Sandfire Resources

Can any of the company-specific risk be diversified away by investing in both G8 Education and Sandfire 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 G8 Education and Sandfire Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between G8 Education and Sandfire Resources NL, you can compare the effects of market volatilities on G8 Education and Sandfire 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 G8 Education with a short position of Sandfire Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of G8 Education and Sandfire Resources.

Diversification Opportunities for G8 Education and Sandfire Resources

0.3

Correlation Coefficient

G8 Education  Sandfire Resources

Weak diversification

The 3 months correlation between GEM and Sandfire is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding G8 Education and Sandfire Resources NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sandfire Resources and G8 Education 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 G8 Education are associated (or correlated) with Sandfire Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sandfire Resources has no effect on the direction of G8 Education i.e., G8 Education and Sandfire Resources go up and down completely randomly.

Pair Corralation between G8 Education and Sandfire Resources

Assuming the 90 days trading horizon G8 Education is expected to generate 0.93 times more return on investment than Sandfire Resources. However, G8 Education is 1.08 times less risky than Sandfire Resources. It trades about -0.05 of its potential returns per unit of risk. Sandfire Resources NL is currently generating about -0.12 per unit of risk. If you would invest  142.00  in G8 Education on September 29, 2024 and sell it today you would lose (8.00) from holding G8 Education or give up 5.63% of portfolio value over 90 days.

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

G8 Education  vs.  Sandfire Resources NL

G8 Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days G8 Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, G8 Education is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Sandfire Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sandfire Resources NL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with G8 Education and Sandfire Resources

The main advantage of trading using opposite G8 Education and Sandfire Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if G8 Education position performs unexpectedly, Sandfire 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 Sandfire Resources will offset losses from the drop in Sandfire Resources' long position.

The idea behind G8 Education and Sandfire Resources NL 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.