Correlation Between Eramet SA and Europlasma

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

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

Diversification Opportunities for Eramet SA and Europlasma

0.75

Correlation Coefficient

Eramet SA  Europlasma

Poor diversification

The 3 months correlation between Eramet and Europlasma is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Eramet SA and Europlasma SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Europlasma SA and Eramet SA 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 Eramet SA are associated (or correlated) with Europlasma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Europlasma SA has no effect on the direction of Eramet SA i.e., Eramet SA and Europlasma go up and down completely randomly.

Pair Corralation between Eramet SA and Europlasma

Assuming the 90 days trading horizon Eramet SA is expected to under-perform the Europlasma. But the stock apears to be less risky and, when comparing its historical volatility, Eramet SA is 6.28 times less risky than Europlasma. The stock trades about -0.13 of its potential returns per unit of risk. The Europlasma SA is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  17.00  in Europlasma SA on September 5, 2024 and sell it today you would lose (10.00) from holding Europlasma SA or give up 58.82% of portfolio value over 90 days.

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

Eramet SA  vs.  Europlasma SA

Eramet SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eramet SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Europlasma SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Europlasma SA has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Europlasma is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Eramet SA and Europlasma

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

The idea behind Eramet SA and Europlasma SA 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.