Correlation Between Direct Capital and Scope Metals

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

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

Diversification Opportunities for Direct Capital and Scope Metals

-0.2

Correlation Coefficient

Direct Capital  Scope Metals

Good diversification

The 3 months correlation between Direct and Scope is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Direct Capital Investments and Scope Metals Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scope Metals Group and Direct Capital 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 Direct Capital Investments are associated (or correlated) with Scope Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scope Metals Group has no effect on the direction of Direct Capital i.e., Direct Capital and Scope Metals go up and down completely randomly.

Pair Corralation between Direct Capital and Scope Metals

Assuming the 90 days trading horizon Direct Capital Investments is expected to under-perform the Scope Metals. In addition to that, Direct Capital is 3.76 times more volatile than Scope Metals Group. It trades about -0.1 of its total potential returns per unit of risk. Scope Metals Group is currently generating about -0.06 per unit of volatility. If you would invest  1,481,000  in Scope Metals Group on December 21, 2024 and sell it today you would lose (81,000) from holding Scope Metals Group or give up 5.47% of portfolio value over 90 days.

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

Direct Capital Investments  vs.  Scope Metals Group

Direct Capital Inves

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direct Capital Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Scope Metals Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Scope Metals Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Scope Metals is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Direct Capital and Scope Metals

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

The idea behind Direct Capital Investments and Scope Metals Group 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.