Correlation Between Leading Edge and First American

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

By analyzing existing cross correlation between Leading Edge Materials and First American Silver, you can compare the effects of market volatilities on Leading Edge and First American 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 Leading Edge with a short position of First American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Leading Edge and First American.

Diversification Opportunities for Leading Edge and First American

0.28

Correlation Coefficient

Leading Edge  First American

Modest diversification

The 3 months correlation between Leading and First is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Leading Edge Materials and First American Silver in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First American Silver and Leading Edge 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 Leading Edge Materials are associated (or correlated) with First American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First American Silver has no effect on the direction of Leading Edge i.e., Leading Edge and First American go up and down completely randomly.

Pair Corralation between Leading Edge and First American

Assuming the 90 days horizon Leading Edge is expected to generate 176.81 times less return on investment than First American. But when comparing it to its historical volatility, Leading Edge Materials is 15.54 times less risky than First American. It trades about 0.01 of its potential returns per unit of risk. First American Silver is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.01  in First American Silver on May 16, 2025 and sell it today you would earn a total of  0.00  from holding First American Silver or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Leading Edge Materials  vs.  First American Silver

Leading Edge Materials

Risk-Adjusted Performance

Weakest

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

First American Silver

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in First American Silver are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, First American sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Leading Edge and First American

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

The idea behind Leading Edge Materials and First American Silver 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.