Correlation Between European Metals and Empire Metals

Can any of the company-specific risk be diversified away by investing in both European Metals and Empire 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 European Metals and Empire Metals 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 Empire Metals Limited, you can compare the effects of market volatilities on European Metals and Empire 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 European Metals with a short position of Empire Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of European Metals and Empire Metals.

Diversification Opportunities for European Metals and Empire Metals

0.35

Correlation Coefficient

European Metals  Empire Metals

Weak diversification

The 3 months correlation between European and Empire is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding European Metals Holdings and Empire Metals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Empire Metals Limited 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 Empire Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Empire Metals Limited has no effect on the direction of European Metals i.e., European Metals and Empire Metals go up and down completely randomly.

Pair Corralation between European Metals and Empire Metals

Assuming the 90 days trading horizon European Metals is expected to generate 2.22 times less return on investment than Empire Metals. In addition to that, European Metals is 1.34 times more volatile than Empire Metals Limited. It trades about 0.08 of its total potential returns per unit of risk. Empire Metals Limited is currently generating about 0.24 per unit of volatility. If you would invest  655.00  in Empire Metals Limited on December 24, 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

European Metals Holdings  vs.  Empire Metals Limited

European Metals Holdings

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in European Metals Holdings are ranked lower than 6 (%) 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.

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 19 (%) 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.

Pair Trading with European Metals and Empire Metals

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

The idea behind European Metals Holdings and Empire Metals Limited 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.