Correlation Between International Frontier and Freehold Royalties
Can any of the company-specific risk be diversified away by investing in both International Frontier and Freehold Royalties 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 International Frontier and Freehold Royalties into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Frontier Resources and Freehold Royalties, you can compare the effects of market volatilities on International Frontier and Freehold Royalties 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 International Frontier with a short position of Freehold Royalties. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Frontier and Freehold Royalties.
Diversification Opportunities for International Frontier and Freehold Royalties
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between International and Freehold is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding International Frontier Resourc and Freehold Royalties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freehold Royalties and International Frontier 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 International Frontier Resources are associated (or correlated) with Freehold Royalties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freehold Royalties has no effect on the direction of International Frontier i.e., International Frontier and Freehold Royalties go up and down completely randomly.
Pair Corralation between International Frontier and Freehold Royalties
Assuming the 90 days horizon International Frontier Resources is expected to generate 16.89 times more return on investment than Freehold Royalties. However, International Frontier is 16.89 times more volatile than Freehold Royalties. It trades about 0.19 of its potential returns per unit of risk. Freehold Royalties is currently generating about -0.13 per unit of risk. If you would invest 6.00 in International Frontier Resources on January 19, 2024 and sell it today you would earn a total of 3.00 from holding International Frontier Resources or generate 50.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Frontier Resourc vs. Freehold Royalties
Performance |
| Timeline |
| International Frontier |
| Freehold Royalties |
International Frontier and Freehold Royalties Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Frontier and Freehold Royalties
The main advantage of trading using opposite International Frontier and Freehold Royalties positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Frontier position performs unexpectedly, Freehold Royalties 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 Freehold Royalties will offset losses from the drop in Freehold Royalties' long position.The idea behind International Frontier Resources and Freehold Royalties 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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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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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