Correlation Between CMC Metals and Defiance Silver

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

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

Diversification Opportunities for CMC Metals and Defiance Silver

-0.51

Correlation Coefficient

CMC Metals  Defiance Silver

Excellent diversification

The 3 months correlation between CMC and Defiance is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding CMC Metals and Defiance Silver Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defiance Silver Corp and CMC 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 CMC Metals are associated (or correlated) with Defiance Silver. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defiance Silver Corp has no effect on the direction of CMC Metals i.e., CMC Metals and Defiance Silver go up and down completely randomly.

Pair Corralation between CMC Metals and Defiance Silver

Assuming the 90 days horizon CMC Metals is expected to generate 1.72 times more return on investment than Defiance Silver. However, CMC Metals is 1.72 times more volatile than Defiance Silver Corp. It trades about 0.08 of its potential returns per unit of risk. Defiance Silver Corp is currently generating about 0.1 per unit of risk. If you would invest  20.00  in CMC Metals on December 29, 2024 and sell it today you would earn a total of  4.00  from holding CMC Metals or generate 20.0% return on investment over 90 days.

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

CMC Metals  vs.  Defiance Silver Corp

CMC Metals

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CMC Metals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, CMC Metals showed solid returns over the last few months and may actually be approaching a breakup point.

Defiance Silver Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Defiance Silver Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Defiance Silver showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CMC Metals and Defiance Silver

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

The idea behind CMC Metals and Defiance Silver Corp 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.