Correlation Between European Metals and Axfood AB

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

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

Diversification Opportunities for European Metals and Axfood AB

-0.26

Correlation Coefficient

European Metals  Axfood AB

Very good diversification

The 3 months correlation between European and Axfood is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding European Metals Holdings and Axfood AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axfood AB and European 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 European Metals Holdings are associated (or correlated) with Axfood AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axfood AB has no effect on the direction of European Metals i.e., European Metals and Axfood AB go up and down completely randomly.

Pair Corralation between European Metals and Axfood AB

Assuming the 90 days trading horizon European Metals Holdings is expected to generate 18.19 times more return on investment than Axfood AB. However, European Metals is 18.19 times more volatile than Axfood AB. It trades about 0.1 of its potential returns per unit of risk. Axfood AB is currently generating about -0.01 per unit of risk. If you would invest  725.00  in European Metals Holdings on December 29, 2024 and sell it today you would earn a total of  525.00  from holding European Metals Holdings or generate 72.41% return on investment over 90 days.

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

European Metals Holdings  vs.  Axfood AB

European Metals Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in European Metals Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, European Metals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Axfood AB

Risk-Adjusted Performance

Very Weak

Over the last 90 days Axfood AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Axfood AB is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with European Metals and Axfood AB

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

The idea behind European Metals Holdings and Axfood AB 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.