Correlation Between Formetal and PlayD Co

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

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

Diversification Opportunities for Formetal and PlayD Co

0.31

Correlation Coefficient

Formetal  PlayD Co

Weak diversification

The 3 months correlation between Formetal and PlayD is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Formetal Co and PlayD Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PlayD Co and Formetal 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 Formetal Co are associated (or correlated) with PlayD Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PlayD Co has no effect on the direction of Formetal i.e., Formetal and PlayD Co go up and down completely randomly.

Pair Corralation between Formetal and PlayD Co

Assuming the 90 days trading horizon Formetal Co is expected to generate 0.8 times more return on investment than PlayD Co. However, Formetal Co is 1.26 times less risky than PlayD Co. It trades about 0.16 of its potential returns per unit of risk. PlayD Co is currently generating about 0.11 per unit of risk. If you would invest  267,000  in Formetal Co on September 12, 2024 and sell it today you would earn a total of  85,500  from holding Formetal Co or generate 32.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

Formetal Co  vs.  PlayD Co

Formetal

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Formetal Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Formetal sustained solid returns over the last few months and may actually be approaching a breakup point.

PlayD Co

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Formetal and PlayD Co

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

The idea behind Formetal Co and PlayD 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.

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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.