Correlation Between Capital Power and Labrador Iron

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

By analyzing existing cross correlation between Capital Power and Labrador Iron Ore, you can compare the effects of market volatilities on Capital Power and Labrador Iron 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 Capital Power with a short position of Labrador Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Power and Labrador Iron.

Diversification Opportunities for Capital Power and Labrador Iron

-0.04

Correlation Coefficient

Capital Power  Labrador Iron

Good diversification

The 3 months correlation between Capital and Labrador is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Capital Power and Labrador Iron Ore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Labrador Iron Ore and Capital Power 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 Capital Power are associated (or correlated) with Labrador Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Labrador Iron Ore has no effect on the direction of Capital Power i.e., Capital Power and Labrador Iron go up and down completely randomly.

Pair Corralation between Capital Power and Labrador Iron

Assuming the 90 days trading horizon Capital Power is expected to generate 1.14 times more return on investment than Labrador Iron. However, Capital Power is 1.14 times more volatile than Labrador Iron Ore. It trades about 0.33 of its potential returns per unit of risk. Labrador Iron Ore is currently generating about 0.01 per unit of risk. If you would invest  4,621  in Capital Power on April 21, 2025 and sell it today you would earn a total of  1,429  from holding Capital Power or generate 30.92% return on investment over 90 days.

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

Capital Power  vs.  Labrador Iron Ore

Capital Power

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Power are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Capital Power displayed solid returns over the last few months and may actually be approaching a breakup point.

Labrador Iron Ore

Risk-Adjusted Performance

Very Weak

Over the last 90 days Labrador Iron Ore has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Labrador Iron is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Capital Power and Labrador Iron

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

The idea behind Capital Power and Labrador Iron Ore 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..