Correlation Between Pine Cliff and Freehold Royalties

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

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

Diversification Opportunities for Pine Cliff and Freehold Royalties

0.3

Correlation Coefficient

Pine Cliff  Freehold Royalties

Weak diversification

The 3 months correlation between Pine and Freehold is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Pine Cliff Energy and Freehold Royalties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freehold Royalties and Pine Cliff 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 Pine Cliff Energy are associated (or correlated) with Freehold Royalties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freehold Royalties has no effect on the direction of Pine Cliff i.e., Pine Cliff and Freehold Royalties go up and down completely randomly.

Pair Corralation between Pine Cliff and Freehold Royalties

Assuming the 90 days trading horizon Pine Cliff Energy is expected to under-perform the Freehold Royalties. In addition to that, Pine Cliff is 2.34 times more volatile than Freehold Royalties. It trades about -0.05 of its total potential returns per unit of risk. Freehold Royalties is currently generating about -0.06 per unit of volatility. If you would invest  1,372  in Freehold Royalties on September 17, 2024 and sell it today you would lose (66.00) from holding Freehold Royalties or give up 4.81% of portfolio value over 90 days.

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

Pine Cliff Energy  vs.  Freehold Royalties

Pine Cliff Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pine Cliff Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Freehold Royalties

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Freehold Royalties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Freehold Royalties is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Pine Cliff and Freehold Royalties

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

The idea behind Pine Cliff Energy and Freehold 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 Transaction History module to view history of all your transactions and understand their impact on performance.