Correlation Between Eramet SA and Asia Broadband

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

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

Diversification Opportunities for Eramet SA and Asia Broadband

0.79

Correlation Coefficient

Eramet SA  Asia Broadband

Poor diversification

The 3 months correlation between Eramet and Asia is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Eramet SA ADR and Asia Broadband in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Broadband 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 ADR are associated (or correlated) with Asia Broadband. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Broadband has no effect on the direction of Eramet SA i.e., Eramet SA and Asia Broadband go up and down completely randomly.

Pair Corralation between Eramet SA and Asia Broadband

Assuming the 90 days horizon Eramet SA ADR is expected to generate 0.66 times more return on investment than Asia Broadband. However, Eramet SA ADR is 1.52 times less risky than Asia Broadband. It trades about -0.05 of its potential returns per unit of risk. Asia Broadband is currently generating about -0.14 per unit of risk. If you would invest  684.00  in Eramet SA ADR on September 13, 2024 and sell it today you would lose (100.00) from holding Eramet SA ADR or give up 14.62% of portfolio value over 90 days.

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

Eramet SA ADR  vs.  Asia Broadband

Eramet SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eramet SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Asia Broadband

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Asia Broadband 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 fundamental drivers 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.

Pair Trading with Eramet SA and Asia Broadband

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

The idea behind Eramet SA ADR and Asia Broadband 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.