Correlation Between Riverside Resources and Sierra Madre

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

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

Diversification Opportunities for Riverside Resources and Sierra Madre

0.32

Correlation Coefficient

Riverside Resources  Sierra Madre

Weak diversification

The 3 months correlation between Riverside and Sierra is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Riverside Resources and Sierra Madre Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sierra Madre Gold and Riverside 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 Riverside Resources are associated (or correlated) with Sierra Madre. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sierra Madre Gold has no effect on the direction of Riverside Resources i.e., Riverside Resources and Sierra Madre go up and down completely randomly.

Pair Corralation between Riverside Resources and Sierra Madre

Assuming the 90 days horizon Riverside Resources is expected to generate 0.85 times more return on investment than Sierra Madre. However, Riverside Resources is 1.18 times less risky than Sierra Madre. It trades about 0.0 of its potential returns per unit of risk. Sierra Madre Gold is currently generating about -0.03 per unit of risk. If you would invest  11.00  in Riverside Resources on September 2, 2024 and sell it today you would lose (1.00) from holding Riverside Resources or give up 9.09% of portfolio value over 90 days.

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

Riverside Resources  vs.  Sierra Madre Gold

Riverside Resources

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sierra Madre Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sierra Madre Gold has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile 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 Riverside Resources and Sierra Madre

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

The idea behind Riverside Resources and Sierra Madre Gold 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.