Correlation Between Europa Metals and African Media

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

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

Diversification Opportunities for Europa Metals and African Media

0.2

Correlation Coefficient

Europa Metals  African Media

Modest diversification

The 3 months correlation between Europa and African is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Europa Metals and African Media Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on African Media Entert and Europa 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 Europa Metals are associated (or correlated) with African Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of African Media Entert has no effect on the direction of Europa Metals i.e., Europa Metals and African Media go up and down completely randomly.

Pair Corralation between Europa Metals and African Media

Assuming the 90 days trading horizon Europa Metals is expected to generate 4.15 times more return on investment than African Media. However, Europa Metals is 4.15 times more volatile than African Media Entertainment. It trades about 0.06 of its potential returns per unit of risk. African Media Entertainment is currently generating about 0.04 per unit of risk. If you would invest  5,000  in Europa Metals on September 5, 2024 and sell it today you would earn a total of  0.00  from holding Europa Metals or generate 0.0% return on investment over 90 days.

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

Europa Metals  vs.  African Media Entertainment

Europa Metals

Risk-Adjusted Performance

4 of 100

Solid

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

African Media Entert

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in African Media Entertainment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, African Media may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Europa Metals and African Media

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

The idea behind Europa Metals and African Media Entertainment 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.