Correlation Between Century Aluminum and Mesabi Trust

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

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

Diversification Opportunities for Century Aluminum and Mesabi Trust

0.86

Correlation Coefficient

Century Aluminum  Mesabi Trust

Very poor diversification

The 3 months correlation between Century and Mesabi is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Century Aluminum and Mesabi Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mesabi Trust and Century Aluminum 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 Century Aluminum are associated (or correlated) with Mesabi Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mesabi Trust has no effect on the direction of Century Aluminum i.e., Century Aluminum and Mesabi Trust go up and down completely randomly.

Pair Corralation between Century Aluminum and Mesabi Trust

Given the investment horizon of 90 days Century Aluminum is expected to generate 1.11 times more return on investment than Mesabi Trust. However, Century Aluminum is 1.11 times more volatile than Mesabi Trust. It trades about 0.26 of its potential returns per unit of risk. Mesabi Trust is currently generating about 0.22 per unit of risk. If you would invest  1,297  in Century Aluminum on September 5, 2024 and sell it today you would earn a total of  1,097  from holding Century Aluminum or generate 84.58% return on investment over 90 days.

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

Century Aluminum  vs.  Mesabi Trust

Century Aluminum

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Century Aluminum are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Century Aluminum showed solid returns over the last few months and may actually be approaching a breakup point.

Mesabi Trust

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mesabi Trust are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Mesabi Trust sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Century Aluminum and Mesabi Trust

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

The idea behind Century Aluminum and Mesabi Trust 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.