Correlation Between Western Metal and National Silicon

Can any of the company-specific risk be diversified away by investing in both Western Metal and National Silicon 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 National Silicon 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 National Silicon Industry, you can compare the effects of market volatilities on Western Metal and National Silicon 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 National Silicon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Metal and National Silicon.

Diversification Opportunities for Western Metal and National Silicon

-0.23

Correlation Coefficient

Western Metal  National Silicon

Very good diversification

The 3 months correlation between Western and National is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Western Metal Materials and National Silicon Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Silicon Industry 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 National Silicon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Silicon Industry has no effect on the direction of Western Metal i.e., Western Metal and National Silicon go up and down completely randomly.

Pair Corralation between Western Metal and National Silicon

Assuming the 90 days trading horizon Western Metal Materials is expected to generate 0.91 times more return on investment than National Silicon. However, Western Metal Materials is 1.1 times less risky than National Silicon. It trades about 0.13 of its potential returns per unit of risk. National Silicon Industry is currently generating about -0.05 per unit of risk. If you would invest  1,461  in Western Metal Materials on October 14, 2024 and sell it today you would earn a total of  386.00  from holding Western Metal Materials or generate 26.42% return on investment over 90 days.

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

Western Metal Materials  vs.  National Silicon Industry

Western Metal Materials

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Metal Materials are ranked lower than 10 (%) 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.

National Silicon Industry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Silicon Industry has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Western Metal and National Silicon

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

The idea behind Western Metal Materials and National Silicon Industry 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.

Check out your portfolio center.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.