Correlation Between Southern Copper and Silver Spruce

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

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

Diversification Opportunities for Southern Copper and Silver Spruce

0.37

Correlation Coefficient

Southern Copper  Silver Spruce

Weak diversification

The 3 months correlation between Southern and Silver is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Southern Copper and Silver Spruce Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silver Spruce Resources and Southern Copper 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 Copper are associated (or correlated) with Silver Spruce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silver Spruce Resources has no effect on the direction of Southern Copper i.e., Southern Copper and Silver Spruce go up and down completely randomly.

Pair Corralation between Southern Copper and Silver Spruce

Given the investment horizon of 90 days Southern Copper is expected to generate 3.26 times less return on investment than Silver Spruce. But when comparing it to its historical volatility, Southern Copper is 4.95 times less risky than Silver Spruce. It trades about 0.08 of its potential returns per unit of risk. Silver Spruce Resources is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1.67  in Silver Spruce Resources on March 5, 2024 and sell it today you would lose (0.12) from holding Silver Spruce Resources or give up 7.19% of portfolio value over 90 days.

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

Southern Copper  vs.  Silver Spruce Resources

Southern Copper

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Copper are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Southern Copper displayed solid returns over the last few months and may actually be approaching a breakup point.

Silver Spruce Resources

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Silver Spruce Resources are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, Silver Spruce reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southern Copper and Silver Spruce

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

The idea behind Southern Copper and Silver Spruce 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.