Correlation Between Compania and American Copper

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

By analyzing existing cross correlation between Compania de Minas and American Copper Development, you can compare the effects of market volatilities on Compania and American Copper 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 Compania with a short position of American Copper. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compania and American Copper.

Diversification Opportunities for Compania and American Copper

0.27

Correlation Coefficient

Compania  American Copper

Modest diversification

The 3 months correlation between Compania and American is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Compania de Minas and American Copper Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Copper Deve and Compania 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 Compania de Minas are associated (or correlated) with American Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Copper Deve has no effect on the direction of Compania i.e., Compania and American Copper go up and down completely randomly.

Pair Corralation between Compania and American Copper

Considering the 90-day investment horizon Compania is expected to generate 35.51 times less return on investment than American Copper. But when comparing it to its historical volatility, Compania de Minas is 63.51 times less risky than American Copper. It trades about 0.22 of its potential returns per unit of risk. American Copper Development is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  15.00  in American Copper Development on December 29, 2024 and sell it today you would lose (5.00) from holding American Copper Development or give up 33.33% of portfolio value over 90 days.

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

Compania de Minas  vs.  American Copper Development

Compania de Minas

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Compania de Minas are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Compania displayed solid returns over the last few months and may actually be approaching a breakup point.

American Copper Deve

Risk-Adjusted Performance

OK

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

Pair Trading with Compania and American Copper

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

The idea behind Compania de Minas and American Copper Development 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.