Correlation Between Iron Road and Peninsula Energy

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

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

Diversification Opportunities for Iron Road and Peninsula Energy

0.71

Correlation Coefficient

Iron Road  Peninsula Energy

Poor diversification

The 3 months correlation between Iron and Peninsula is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Iron Road and Peninsula Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peninsula Energy and Iron Road 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 Iron Road are associated (or correlated) with Peninsula Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peninsula Energy has no effect on the direction of Iron Road i.e., Iron Road and Peninsula Energy go up and down completely randomly.

Pair Corralation between Iron Road and Peninsula Energy

Assuming the 90 days trading horizon Iron Road is expected to generate 0.69 times more return on investment than Peninsula Energy. However, Iron Road is 1.44 times less risky than Peninsula Energy. It trades about -0.02 of its potential returns per unit of risk. Peninsula Energy is currently generating about -0.07 per unit of risk. If you would invest  6.50  in Iron Road on September 17, 2024 and sell it today you would lose (0.50) from holding Iron Road or give up 7.69% of portfolio value over 90 days.

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

Iron Road  vs.  Peninsula Energy

Iron Road

Risk-Adjusted Performance

0 of 100

Very Weak

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

Peninsula Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Peninsula Energy 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 Iron Road and Peninsula Energy

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

The idea behind Iron Road and Peninsula 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.

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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 Stocks Directory module to find actively traded stocks across global markets.