Correlation Between ROK Resources and Whitecap Resources

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

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

Diversification Opportunities for ROK Resources and Whitecap Resources

0.46

Correlation Coefficient

ROK Resources  Whitecap Resources

Very weak diversification

The 3 months correlation between ROK and Whitecap is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding ROK Resources and Whitecap Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Whitecap Resources and ROK Resources 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 ROK Resources are associated (or correlated) with Whitecap Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Whitecap Resources has no effect on the direction of ROK Resources i.e., ROK Resources and Whitecap Resources go up and down completely randomly.

Pair Corralation between ROK Resources and Whitecap Resources

Assuming the 90 days horizon ROK Resources is expected to under-perform the Whitecap Resources. In addition to that, ROK Resources is 2.67 times more volatile than Whitecap Resources. It trades about -0.06 of its total potential returns per unit of risk. Whitecap Resources is currently generating about 0.01 per unit of volatility. If you would invest  725.00  in Whitecap Resources on August 31, 2024 and sell it today you would earn a total of  3.00  from holding Whitecap Resources or generate 0.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

ROK Resources  vs.  Whitecap Resources

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 weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Whitecap Resources

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with ROK Resources and Whitecap Resources

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

The idea behind ROK Resources and Whitecap 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.