Correlation Between Equity Metals and District Metals

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

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

Diversification Opportunities for Equity Metals and District Metals

0.33

Correlation Coefficient

Equity Metals  District Metals

Weak diversification

The 3 months correlation between Equity and District is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Equity Metals Corp and District Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on District Metals Corp and Equity 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 Equity Metals Corp are associated (or correlated) with District Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of District Metals Corp has no effect on the direction of Equity Metals i.e., Equity Metals and District Metals go up and down completely randomly.

Pair Corralation between Equity Metals and District Metals

Assuming the 90 days trading horizon Equity Metals is expected to generate 4.08 times less return on investment than District Metals. In addition to that, Equity Metals is 1.34 times more volatile than District Metals Corp. It trades about 0.03 of its total potential returns per unit of risk. District Metals Corp is currently generating about 0.15 per unit of volatility. If you would invest  36.00  in District Metals Corp on October 6, 2024 and sell it today you would earn a total of  4.00  from holding District Metals Corp or generate 11.11% return on investment over 90 days.

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

Equity Metals Corp  vs.  District Metals Corp

Equity Metals Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equity Metals Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Equity Metals is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

District Metals Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in District Metals Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, District Metals is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Equity Metals and District Metals

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

The idea behind Equity Metals Corp and District Metals Corp 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.