Correlation Between Adriatic Metals and Wesfarmers

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

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

Diversification Opportunities for Adriatic Metals and Wesfarmers

0.12

Correlation Coefficient

Adriatic Metals  Wesfarmers

Average diversification

The 3 months correlation between Adriatic and Wesfarmers is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Adriatic Metals Plc and Wesfarmers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wesfarmers and Adriatic Metals 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 Adriatic Metals Plc are associated (or correlated) with Wesfarmers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wesfarmers has no effect on the direction of Adriatic Metals i.e., Adriatic Metals and Wesfarmers go up and down completely randomly.

Pair Corralation between Adriatic Metals and Wesfarmers

Assuming the 90 days trading horizon Adriatic Metals Plc is expected to under-perform the Wesfarmers. In addition to that, Adriatic Metals is 1.7 times more volatile than Wesfarmers. It trades about -0.06 of its total potential returns per unit of risk. Wesfarmers is currently generating about 0.21 per unit of volatility. If you would invest  7,031  in Wesfarmers on September 16, 2024 and sell it today you would earn a total of  334.00  from holding Wesfarmers or generate 4.75% return on investment over 90 days.

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

Adriatic Metals Plc  vs.  Wesfarmers

Adriatic Metals Plc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Adriatic Metals Plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Adriatic Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Wesfarmers

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wesfarmers are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Wesfarmers is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Adriatic Metals and Wesfarmers

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

The idea behind Adriatic Metals Plc and Wesfarmers 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.