Correlation Between Emetals and ACDC Metals

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

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

Diversification Opportunities for Emetals and ACDC Metals

-0.12

Correlation Coefficient

Emetals  ACDC Metals

Good diversification

The 3 months correlation between Emetals and ACDC is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Emetals and ACDC Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ACDC Metals and Emetals 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 Emetals are associated (or correlated) with ACDC Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ACDC Metals has no effect on the direction of Emetals i.e., Emetals and ACDC Metals go up and down completely randomly.

Pair Corralation between Emetals and ACDC Metals

Assuming the 90 days trading horizon Emetals is expected to generate 0.91 times more return on investment than ACDC Metals. However, Emetals is 1.1 times less risky than ACDC Metals. It trades about 0.1 of its potential returns per unit of risk. ACDC Metals is currently generating about 0.06 per unit of risk. If you would invest  0.40  in Emetals on September 17, 2024 and sell it today you would earn a total of  0.10  from holding Emetals or generate 25.0% return on investment over 90 days.

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

Emetals  vs.  ACDC Metals

Emetals

Risk-Adjusted Performance

7 of 100

OK

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

ACDC Metals

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ACDC Metals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, ACDC Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Emetals and ACDC Metals

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

The idea behind Emetals and ACDC 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.

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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.