Correlation Between CMC Metals and Brixton Metals

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

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

Diversification Opportunities for CMC Metals and Brixton Metals

-0.02

Correlation Coefficient

CMC Metals  Brixton Metals

Good diversification

The 3 months correlation between CMC and Brixton is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding CMC Metals and Brixton Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brixton Metals 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 Brixton Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brixton Metals has no effect on the direction of CMC Metals i.e., CMC Metals and Brixton Metals go up and down completely randomly.

Pair Corralation between CMC Metals and Brixton Metals

Assuming the 90 days horizon CMC Metals is expected to generate 2.83 times more return on investment than Brixton Metals. However, CMC Metals is 2.83 times more volatile than Brixton Metals. It trades about 0.03 of its potential returns per unit of risk. Brixton Metals is currently generating about 0.02 per unit of risk. If you would invest  1.74  in CMC Metals on December 28, 2024 and sell it today you would lose (0.56) from holding CMC Metals or give up 32.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	85.0%
Values	Daily Returns

CMC Metals  vs.  Brixton Metals

CMC Metals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CMC Metals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CMC Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Brixton Metals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Brixton Metals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Brixton Metals may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with CMC Metals and Brixton Metals

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

The idea behind CMC Metals and Brixton Metals 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.