Correlation Between Commercial Metals and Southern Copper

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

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

Diversification Opportunities for Commercial Metals and Southern Copper

-0.23

Correlation Coefficient

Commercial Metals  Southern Copper

Very good diversification

The 3 months correlation between Commercial and Southern is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Commercial Metals and Southern Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Copper and Commercial 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 Commercial Metals are associated (or correlated) with Southern Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Copper has no effect on the direction of Commercial Metals i.e., Commercial Metals and Southern Copper go up and down completely randomly.

Pair Corralation between Commercial Metals and Southern Copper

Considering the 90-day investment horizon Commercial Metals is expected to generate 1.34 times more return on investment than Southern Copper. However, Commercial Metals is 1.34 times more volatile than Southern Copper. It trades about -0.05 of its potential returns per unit of risk. Southern Copper is currently generating about -0.16 per unit of risk. If you would invest  5,380  in Commercial Metals on October 1, 2024 and sell it today you would lose (369.00) from holding Commercial Metals or give up 6.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.62%
Values	Daily Returns

Commercial Metals  vs.  Southern Copper

Commercial Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Commercial Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Commercial Metals is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Southern Copper

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Copper has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Commercial Metals and Southern Copper

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

The idea behind Commercial Metals and Southern Copper 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.