Correlation Between Globex Mining and Tree Island

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

By analyzing existing cross correlation between Globex Mining Enterprises and Tree Island Steel, you can compare the effects of market volatilities on Globex Mining and Tree Island 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 Globex Mining with a short position of Tree Island. Check out your portfolio center. Please also check ongoing floating volatility patterns of Globex Mining and Tree Island.

Diversification Opportunities for Globex Mining and Tree Island

0.76

Correlation Coefficient

Globex Mining  Tree Island

Poor diversification

The 3 months correlation between Globex and Tree is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Globex Mining Enterprises and Tree Island Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tree Island Steel and Globex Mining 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 Globex Mining Enterprises are associated (or correlated) with Tree Island. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tree Island Steel has no effect on the direction of Globex Mining i.e., Globex Mining and Tree Island go up and down completely randomly.

Pair Corralation between Globex Mining and Tree Island

Assuming the 90 days trading horizon Globex Mining Enterprises is expected to generate 0.94 times more return on investment than Tree Island. However, Globex Mining Enterprises is 1.06 times less risky than Tree Island. It trades about 0.21 of its potential returns per unit of risk. Tree Island Steel is currently generating about 0.11 per unit of risk. If you would invest  84.00  in Globex Mining Enterprises on September 26, 2024 and sell it today you would earn a total of  32.00  from holding Globex Mining Enterprises or generate 38.1% return on investment over 90 days.

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

Globex Mining Enterprises  vs.  Tree Island Steel

Globex Mining Enterprises

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Globex Mining Enterprises are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Globex Mining displayed solid returns over the last few months and may actually be approaching a breakup point.

Tree Island Steel

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tree Island Steel are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal essential indicators, Tree Island displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Globex Mining and Tree Island

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

The idea behind Globex Mining Enterprises and Tree Island Steel 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..