Correlation Between Capital Metals and Bellway PLC

Can any of the company-specific risk be diversified away by investing in both Capital Metals and Bellway PLC 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 Bellway PLC 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 Bellway PLC, you can compare the effects of market volatilities on Capital Metals and Bellway PLC 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 Bellway PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Metals and Bellway PLC.

Diversification Opportunities for Capital Metals and Bellway PLC

0.61

Correlation Coefficient

Capital Metals  Bellway PLC

Poor diversification

The 3 months correlation between Capital and Bellway is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Capital Metals PLC and Bellway PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bellway PLC 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 Bellway PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bellway PLC has no effect on the direction of Capital Metals i.e., Capital Metals and Bellway PLC go up and down completely randomly.

Pair Corralation between Capital Metals and Bellway PLC

Assuming the 90 days trading horizon Capital Metals is expected to generate 4.03 times less return on investment than Bellway PLC. In addition to that, Capital Metals is 3.56 times more volatile than Bellway PLC. It trades about 0.0 of its total potential returns per unit of risk. Bellway PLC is currently generating about 0.05 per unit of volatility. If you would invest  196,586  in Bellway PLC on October 25, 2024 and sell it today you would earn a total of  50,214  from holding Bellway PLC or generate 25.54% return on investment over 90 days.

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

Capital Metals PLC  vs.  Bellway PLC

Capital Metals PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital Metals PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Bellway PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bellway PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Capital Metals and Bellway PLC

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

The idea behind Capital Metals PLC and Bellway PLC 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.