Correlation Between Santos and Prairie Provident

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

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

Diversification Opportunities for Santos and Prairie Provident

0.57

Correlation Coefficient

Santos  Prairie Provident

Very weak diversification

The 3 months correlation between Santos and Prairie is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Santos and Prairie Provident Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prairie Provident and Santos 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 Santos are associated (or correlated) with Prairie Provident. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prairie Provident has no effect on the direction of Santos i.e., Santos and Prairie Provident go up and down completely randomly.

Pair Corralation between Santos and Prairie Provident

Assuming the 90 days horizon Santos is expected to under-perform the Prairie Provident. But the pink sheet apears to be less risky and, when comparing its historical volatility, Santos is 3.78 times less risky than Prairie Provident. The pink sheet trades about -0.04 of its potential returns per unit of risk. The Prairie Provident Resources is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3.29  in Prairie Provident Resources on September 17, 2024 and sell it today you would lose (1.19) from holding Prairie Provident Resources or give up 36.17% of portfolio value over 90 days.

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

Santos  vs.  Prairie Provident Resources

Santos

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Santos has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Prairie Provident

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Santos and Prairie Provident

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

The idea behind Santos and Prairie Provident 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.