Correlation Between Western Metal and Linewell Software

Can any of the company-specific risk be diversified away by investing in both Western Metal and Linewell Software 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 Western Metal and Linewell Software into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Western Metal Materials and Linewell Software Co, you can compare the effects of market volatilities on Western Metal and Linewell Software 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 Western Metal with a short position of Linewell Software. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Metal and Linewell Software.

Diversification Opportunities for Western Metal and Linewell Software

0.35

Correlation Coefficient

Western Metal  Linewell Software

Weak diversification

The 3 months correlation between Western and Linewell is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Western Metal Materials and Linewell Software Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Linewell Software and Western Metal 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 Western Metal Materials are associated (or correlated) with Linewell Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Linewell Software has no effect on the direction of Western Metal i.e., Western Metal and Linewell Software go up and down completely randomly.

Pair Corralation between Western Metal and Linewell Software

Assuming the 90 days trading horizon Western Metal Materials is expected to generate 0.8 times more return on investment than Linewell Software. However, Western Metal Materials is 1.25 times less risky than Linewell Software. It trades about 0.01 of its potential returns per unit of risk. Linewell Software Co is currently generating about -0.01 per unit of risk. If you would invest  1,696  in Western Metal Materials on October 10, 2024 and sell it today you would lose (22.00) from holding Western Metal Materials or give up 1.3% of portfolio value over 90 days.

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

Western Metal Materials  vs.  Linewell Software Co

Western Metal Materials

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Western Metal Materials are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Western Metal sustained solid returns over the last few months and may actually be approaching a breakup point.

Linewell Software

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Linewell Software Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Linewell Software is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Western Metal and Linewell Software

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

The idea behind Western Metal Materials and Linewell Software Co 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.