Correlation Between Touchstone Exploration and ROK Resources

Can any of the company-specific risk be diversified away by investing in both Touchstone Exploration and ROK Resources 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 Touchstone Exploration and ROK Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Touchstone Exploration and ROK Resources

0.37

Correlation Coefficient

Touchstone Exploration  ROK Resources

Weak diversification

The 3 months correlation between Touchstone and ROK is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Touchstone Exploration and ROK Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ROK Resources and Touchstone Exploration 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 Touchstone Exploration are associated (or correlated) with ROK Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ROK Resources has no effect on the direction of Touchstone Exploration i.e., Touchstone Exploration and ROK Resources go up and down completely randomly.

Pair Corralation between Touchstone Exploration and ROK Resources

Assuming the 90 days horizon Touchstone Exploration is expected to generate 0.75 times more return on investment than ROK Resources. However, Touchstone Exploration is 1.34 times less risky than ROK Resources. It trades about -0.02 of its potential returns per unit of risk. ROK Resources is currently generating about -0.05 per unit of risk. If you would invest  42.00  in Touchstone Exploration on September 3, 2024 and sell it today you would lose (3.00) from holding Touchstone Exploration or give up 7.14% of portfolio value over 90 days.

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

Touchstone Exploration  vs.  ROK Resources

Touchstone Exploration

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Touchstone Exploration has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Touchstone Exploration is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

ROK Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ROK Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Touchstone Exploration and ROK Resources

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

The idea behind Touchstone Exploration and ROK Resources 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.