Correlation Between Iron Road and ChemoMetec A/S

Can any of the company-specific risk be diversified away by investing in both Iron Road and ChemoMetec A/S 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 Iron Road and ChemoMetec A/S into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Iron Road Limited and ChemoMetec AS, you can compare the effects of market volatilities on Iron Road and ChemoMetec A/S 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 Iron Road with a short position of ChemoMetec A/S. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iron Road and ChemoMetec A/S.

Diversification Opportunities for Iron Road and ChemoMetec A/S

0.28

Correlation Coefficient

Iron Road  ChemoMetec A/S

Modest diversification

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

Pair Corralation between Iron Road and ChemoMetec A/S

Assuming the 90 days horizon Iron Road Limited is expected to generate 6.6 times more return on investment than ChemoMetec A/S. However, Iron Road is 6.6 times more volatile than ChemoMetec AS. It trades about 0.1 of its potential returns per unit of risk. ChemoMetec AS is currently generating about 0.08 per unit of risk. If you would invest  2.35  in Iron Road Limited on December 22, 2024 and sell it today you would earn a total of  0.65  from holding Iron Road Limited or generate 27.66% return on investment over 90 days.

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

Iron Road Limited  vs.  ChemoMetec AS

Iron Road Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Iron Road Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Iron Road reported solid returns over the last few months and may actually be approaching a breakup point.

ChemoMetec A/S

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ChemoMetec AS are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, ChemoMetec A/S reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Iron Road and ChemoMetec A/S

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

The idea behind Iron Road Limited and ChemoMetec AS 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.