Correlation Between Capital Metals and Associated British

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

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

Diversification Opportunities for Capital Metals and Associated British

0.29

Correlation Coefficient

Capital Metals  Associated British

Modest diversification

The 3 months correlation between Capital and Associated is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Capital Metals PLC and Associated British Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Associated British Foods and Capital 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 Capital Metals PLC are associated (or correlated) with Associated British. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Associated British Foods has no effect on the direction of Capital Metals i.e., Capital Metals and Associated British go up and down completely randomly.

Pair Corralation between Capital Metals and Associated British

Assuming the 90 days trading horizon Capital Metals PLC is expected to generate 2.68 times more return on investment than Associated British. However, Capital Metals is 2.68 times more volatile than Associated British Foods. It trades about 0.15 of its potential returns per unit of risk. Associated British Foods is currently generating about -0.07 per unit of risk. If you would invest  180.00  in Capital Metals PLC on December 25, 2024 and sell it today you would earn a total of  70.00  from holding Capital Metals PLC or generate 38.89% return on investment over 90 days.

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

Capital Metals PLC  vs.  Associated British Foods

Capital Metals PLC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Metals PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Capital Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Associated British Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Capital Metals and Associated British

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

The idea behind Capital Metals PLC and Associated British Foods 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.