Correlation Between Red Pine and OceanaGold

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

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

Diversification Opportunities for Red Pine and OceanaGold

0.06

Correlation Coefficient

Red Pine  OceanaGold

Significant diversification

The 3 months correlation between Red and OceanaGold is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Red Pine Exploration and OceanaGold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OceanaGold and Red Pine 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 Red Pine Exploration are associated (or correlated) with OceanaGold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OceanaGold has no effect on the direction of Red Pine i.e., Red Pine and OceanaGold go up and down completely randomly.

Pair Corralation between Red Pine and OceanaGold

Assuming the 90 days horizon Red Pine Exploration is expected to generate 2.65 times more return on investment than OceanaGold. However, Red Pine is 2.65 times more volatile than OceanaGold. It trades about 0.05 of its potential returns per unit of risk. OceanaGold is currently generating about 0.11 per unit of risk. If you would invest  10.00  in Red Pine Exploration on September 12, 2024 and sell it today you would earn a total of  2.00  from holding Red Pine Exploration or generate 20.0% return on investment over 90 days.

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

Red Pine Exploration  vs.  OceanaGold

Red Pine Exploration

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Red Pine Exploration are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Red Pine may actually be approaching a critical reversion point that can send shares even higher in January 2025.

OceanaGold

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in OceanaGold are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal fundamental indicators, OceanaGold displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Red Pine and OceanaGold

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

The idea behind Red Pine Exploration and OceanaGold 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.