Correlation Between Pacific Ridge and Star Royalties

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

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

Diversification Opportunities for Pacific Ridge and Star Royalties

-0.22

Correlation Coefficient

Pacific Ridge  Star Royalties

Very good diversification

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

Pair Corralation between Pacific Ridge and Star Royalties

Assuming the 90 days horizon Pacific Ridge Exploration is expected to generate 5.57 times more return on investment than Star Royalties. However, Pacific Ridge is 5.57 times more volatile than Star Royalties. It trades about 0.07 of its potential returns per unit of risk. Star Royalties is currently generating about 0.0 per unit of risk. If you would invest  3.00  in Pacific Ridge Exploration on September 12, 2024 and sell it today you would lose (1.00) from holding Pacific Ridge Exploration or give up 33.33% of portfolio value over 90 days.

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

Pacific Ridge Exploration  vs.  Star Royalties

Pacific Ridge Exploration

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific Ridge Exploration are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Pacific Ridge reported solid returns over the last few months and may actually be approaching a breakup point.

Star Royalties

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Pacific Ridge and Star Royalties

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

The idea behind Pacific Ridge Exploration and Star Royalties 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.