Correlation Between Empire Metals and Adriatic Metals

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

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

Diversification Opportunities for Empire Metals and Adriatic Metals

0.62

Correlation Coefficient

Empire Metals  Adriatic Metals

Poor diversification

The 3 months correlation between Empire and Adriatic is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Empire Metals Limited and Adriatic Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adriatic Metals and Empire 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 Empire Metals Limited are associated (or correlated) with Adriatic Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adriatic Metals has no effect on the direction of Empire Metals i.e., Empire Metals and Adriatic Metals go up and down completely randomly.

Pair Corralation between Empire Metals and Adriatic Metals

Assuming the 90 days trading horizon Empire Metals Limited is expected to generate 1.73 times more return on investment than Adriatic Metals. However, Empire Metals is 1.73 times more volatile than Adriatic Metals. It trades about 0.24 of its potential returns per unit of risk. Adriatic Metals is currently generating about 0.08 per unit of risk. If you would invest  655.00  in Empire Metals Limited on December 23, 2024 and sell it today you would earn a total of  475.00  from holding Empire Metals Limited or generate 72.52% return on investment over 90 days.

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

Empire Metals Limited  vs.  Adriatic Metals

Empire Metals Limited

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Empire Metals Limited are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Empire Metals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Adriatic Metals

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Adriatic Metals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Adriatic Metals may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Empire Metals and Adriatic Metals

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

The idea behind Empire Metals Limited and Adriatic 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.

Check out your portfolio center.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.