Correlation Between Snow Lake and African Rainbow

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Can any of the company-specific risk be diversified away by investing in both Snow Lake and African Rainbow 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 Snow Lake and African Rainbow into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Snow Lake Resources and African Rainbow Minerals, you can compare the effects of market volatilities on Snow Lake and African Rainbow 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 Snow Lake with a short position of African Rainbow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Snow Lake and African Rainbow.

Diversification Opportunities for Snow Lake and African Rainbow

-0.22
  Correlation Coefficient

Very good diversification

The 3 months correlation between Snow and African is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Snow Lake Resources and African Rainbow Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on African Rainbow Minerals and Snow Lake 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 Snow Lake Resources are associated (or correlated) with African Rainbow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of African Rainbow Minerals has no effect on the direction of Snow Lake i.e., Snow Lake and African Rainbow go up and down completely randomly.

Pair Corralation between Snow Lake and African Rainbow

Given the investment horizon of 90 days Snow Lake Resources is expected to under-perform the African Rainbow. In addition to that, Snow Lake is 1.47 times more volatile than African Rainbow Minerals. It trades about -0.04 of its total potential returns per unit of risk. African Rainbow Minerals is currently generating about 0.15 per unit of volatility. If you would invest  949.00  in African Rainbow Minerals on September 14, 2024 and sell it today you would earn a total of  271.00  from holding African Rainbow Minerals or generate 28.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy14.13%
ValuesDaily Returns

Snow Lake Resources  vs.  African Rainbow Minerals

 Performance 
       Timeline  
Snow Lake Resources 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Snow Lake Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.
African Rainbow Minerals 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days African Rainbow Minerals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, African Rainbow is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Snow Lake and African Rainbow Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Snow Lake and African Rainbow

The main advantage of trading using opposite Snow Lake and African Rainbow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Snow Lake position performs unexpectedly, African Rainbow 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 African Rainbow will offset losses from the drop in African Rainbow's long position.
The idea behind Snow Lake Resources and African Rainbow Minerals 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

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