Correlation Between LEGACY IRON and Computershare

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

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

Diversification Opportunities for LEGACY IRON and Computershare

-0.55

Correlation Coefficient

LEGACY IRON  Computershare

Excellent diversification

The 3 months correlation between LEGACY and Computershare is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding LEGACY IRON ORE and Computershare Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Computershare Limited and LEGACY IRON 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 LEGACY IRON ORE are associated (or correlated) with Computershare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Computershare Limited has no effect on the direction of LEGACY IRON i.e., LEGACY IRON and Computershare go up and down completely randomly.

Pair Corralation between LEGACY IRON and Computershare

Assuming the 90 days trading horizon LEGACY IRON ORE is expected to under-perform the Computershare. But the stock apears to be less risky and, when comparing its historical volatility, LEGACY IRON ORE is 1.48 times less risky than Computershare. The stock trades about -0.13 of its potential returns per unit of risk. The Computershare Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,740  in Computershare Limited on August 30, 2024 and sell it today you would earn a total of  240.00  from holding Computershare Limited or generate 13.79% return on investment over 90 days.

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

LEGACY IRON ORE  vs.  Computershare Limited

LEGACY IRON ORE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LEGACY IRON ORE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Computershare Limited

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Computershare Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Computershare reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LEGACY IRON and Computershare

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

The idea behind LEGACY IRON ORE and Computershare Limited 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.