Correlation Between Aston Bay and Paramount Resources

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

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

Diversification Opportunities for Aston Bay and Paramount Resources

-0.16

Correlation Coefficient

Aston Bay  Paramount Resources

Good diversification

The 3 months correlation between Aston and Paramount is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Aston Bay Holdings and Paramount Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paramount Resources and Aston Bay 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 Aston Bay Holdings are associated (or correlated) with Paramount Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paramount Resources has no effect on the direction of Aston Bay i.e., Aston Bay and Paramount Resources go up and down completely randomly.

Pair Corralation between Aston Bay and Paramount Resources

Assuming the 90 days horizon Aston Bay Holdings is expected to under-perform the Paramount Resources. In addition to that, Aston Bay is 2.56 times more volatile than Paramount Resources. It trades about -0.05 of its total potential returns per unit of risk. Paramount Resources is currently generating about 0.3 per unit of volatility. If you would invest  2,838  in Paramount Resources on February 4, 2024 and sell it today you would earn a total of  367.00  from holding Paramount Resources or generate 12.93% return on investment over 90 days.

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

Aston Bay Holdings  vs.  Paramount Resources

Aston Bay Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aston Bay Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Aston Bay showed solid returns over the last few months and may actually be approaching a breakup point.

Paramount Resources

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Paramount Resources are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Paramount Resources displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aston Bay and Paramount Resources

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

The idea behind Aston Bay Holdings and Paramount 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.