Correlation Between Southern Cross and ROK Resources

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

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

Diversification Opportunities for Southern Cross and ROK Resources

0.85

Correlation Coefficient

Southern Cross  ROK Resources

Very poor diversification

The 3 months correlation between Southern and ROK is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Southern Cross Media and ROK Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ROK Resources and Southern Cross 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 Southern Cross Media are associated (or correlated) with ROK Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ROK Resources has no effect on the direction of Southern Cross i.e., Southern Cross and ROK Resources go up and down completely randomly.

Pair Corralation between Southern Cross and ROK Resources

Assuming the 90 days horizon Southern Cross Media is expected to under-perform the ROK Resources. In addition to that, Southern Cross is 1.23 times more volatile than ROK Resources. It trades about -0.06 of its total potential returns per unit of risk. ROK Resources is currently generating about -0.05 per unit of volatility. If you would invest  15.00  in ROK Resources on September 3, 2024 and sell it today you would lose (3.00) from holding ROK Resources or give up 20.0% of portfolio value over 90 days.

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

Southern Cross Media  vs.  ROK Resources

Southern Cross Media

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Cross Media 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.

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 unfluctuating 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 Southern Cross and ROK Resources

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

The idea behind Southern Cross Media and ROK 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.