Correlation Between Adriatic Metals and Sumitomo Metal

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

Diversification Opportunities for Adriatic Metals and Sumitomo Metal

-0.2

Correlation Coefficient

Adriatic Metals  Sumitomo Metal

Good diversification

The 3 months correlation between Adriatic and Sumitomo is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Adriatic Metals PLC and Sumitomo Metal Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Metal Mining 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 Sumitomo Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Metal Mining has no effect on the direction of Adriatic Metals i.e., Adriatic Metals and Sumitomo Metal go up and down completely randomly.

Pair Corralation between Adriatic Metals and Sumitomo Metal

Assuming the 90 days horizon Adriatic Metals PLC is expected to generate 1.23 times more return on investment than Sumitomo Metal. However, Adriatic Metals is 1.23 times more volatile than Sumitomo Metal Mining. It trades about 0.12 of its potential returns per unit of risk. Sumitomo Metal Mining is currently generating about 0.02 per unit of risk. If you would invest  235.00  in Adriatic Metals PLC on December 30, 2024 and sell it today you would earn a total of  48.00  from holding Adriatic Metals PLC or generate 20.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.38%
Values	Daily Returns

Adriatic Metals PLC  vs.  Sumitomo Metal Mining

Adriatic Metals PLC

Risk-Adjusted Performance

OK

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

Sumitomo Metal Mining

Risk-Adjusted Performance

Weak

Over the last 90 days Sumitomo Metal Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Sumitomo Metal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Adriatic Metals and Sumitomo Metal

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

The idea behind Adriatic Metals PLC and Sumitomo Metal Mining 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.