Correlation Between Northern Star and Falcon Metals

Can any of the company-specific risk be diversified away by investing in both Northern Star and Falcon Metals 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 Northern Star and Falcon Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Northern Star and Falcon Metals

-0.67

Correlation Coefficient

Northern Star  Falcon Metals

Excellent diversification

The 3 months correlation between Northern and Falcon is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Northern Star Resources and Falcon Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falcon Metals and Northern Star 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 Northern Star Resources are associated (or correlated) with Falcon Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falcon Metals has no effect on the direction of Northern Star i.e., Northern Star and Falcon Metals go up and down completely randomly.

Pair Corralation between Northern Star and Falcon Metals

Assuming the 90 days trading horizon Northern Star Resources is expected to generate 0.79 times more return on investment than Falcon Metals. However, Northern Star Resources is 1.26 times less risky than Falcon Metals. It trades about -0.14 of its potential returns per unit of risk. Falcon Metals is currently generating about -0.15 per unit of risk. If you would invest  1,774  in Northern Star Resources on September 5, 2024 and sell it today you would lose (161.00) from holding Northern Star Resources or give up 9.08% of portfolio value over 90 days.

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

Northern Star Resources  vs.  Falcon Metals

Northern Star Resources

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Star Resources are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Northern Star may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Falcon Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Falcon Metals 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 essential 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 Northern Star and Falcon Metals

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

The idea behind Northern Star Resources and Falcon Metals 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.

Check out your portfolio center.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.