Correlation Between Eramet SA and United Tractors

Can any of the company-specific risk be diversified away by investing in both Eramet SA and United Tractors 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 United Tractors 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 United Tractors Tbk, you can compare the effects of market volatilities on Eramet SA and United Tractors 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 United Tractors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eramet SA and United Tractors.

Diversification Opportunities for Eramet SA and United Tractors

0.29

Correlation Coefficient

Eramet SA  United Tractors

Modest diversification

The 3 months correlation between Eramet and United is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Eramet SA ADR and United Tractors Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Tractors Tbk 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 United Tractors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Tractors Tbk has no effect on the direction of Eramet SA i.e., Eramet SA and United Tractors go up and down completely randomly.

Pair Corralation between Eramet SA and United Tractors

Assuming the 90 days horizon Eramet SA ADR is expected to under-perform the United Tractors. In addition to that, Eramet SA is 2.24 times more volatile than United Tractors Tbk. It trades about -0.14 of its total potential returns per unit of risk. United Tractors Tbk is currently generating about -0.01 per unit of volatility. If you would invest  3,485  in United Tractors Tbk on September 1, 2024 and sell it today you would lose (62.00) from holding United Tractors Tbk or give up 1.78% of portfolio value over 90 days.

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

Eramet SA ADR  vs.  United Tractors Tbk

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 fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

United Tractors Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Tractors Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, United Tractors is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Eramet SA and United Tractors

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

The idea behind Eramet SA ADR and United Tractors Tbk 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.