Correlation Between SPTSX Dividend and Stellar AfricaGold

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

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

Diversification Opportunities for SPTSX Dividend and Stellar AfricaGold

0.56

Correlation Coefficient

SPTSX Dividend  Stellar AfricaGold

Very weak diversification

The 3 months correlation between SPTSX and Stellar is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding SPTSX Dividend Aristocrats and Stellar AfricaGold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stellar AfricaGold and SPTSX Dividend 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 SPTSX Dividend Aristocrats are associated (or correlated) with Stellar AfricaGold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stellar AfricaGold has no effect on the direction of SPTSX Dividend i.e., SPTSX Dividend and Stellar AfricaGold go up and down completely randomly.

Pair Corralation between SPTSX Dividend and Stellar AfricaGold

Assuming the 90 days trading horizon SPTSX Dividend is expected to generate 45.12 times less return on investment than Stellar AfricaGold. But when comparing it to its historical volatility, SPTSX Dividend Aristocrats is 24.51 times less risky than Stellar AfricaGold. It trades about 0.01 of its potential returns per unit of risk. Stellar AfricaGold is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  8.00  in Stellar AfricaGold on October 1, 2024 and sell it today you would lose (2.00) from holding Stellar AfricaGold or give up 25.0% of portfolio value over 90 days.

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

SPTSX Dividend Aristocrats  vs.  Stellar AfricaGold

Pair Trading with SPTSX Dividend and Stellar AfricaGold

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

The idea behind SPTSX Dividend Aristocrats and Stellar AfricaGold 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.