Correlation Between Europa Metals and Sasol

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

By analyzing existing cross correlation between Europa Metals and Sasol Ltd Bee, you can compare the effects of market volatilities on Europa Metals and Sasol 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 Sasol. Check out your portfolio center. Please also check ongoing floating volatility patterns of Europa Metals and Sasol.

Diversification Opportunities for Europa Metals and Sasol

0.17

Correlation Coefficient

Europa Metals  Sasol

Average diversification

The 3 months correlation between Europa and Sasol is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Europa Metals and Sasol Ltd Bee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sasol Ltd Bee 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 Sasol. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sasol Ltd Bee has no effect on the direction of Europa Metals i.e., Europa Metals and Sasol go up and down completely randomly.

Pair Corralation between Europa Metals and Sasol

Assuming the 90 days trading horizon Europa Metals is expected to under-perform the Sasol. But the stock apears to be less risky and, when comparing its historical volatility, Europa Metals is 1.23 times less risky than Sasol. The stock trades about -0.05 of its potential returns per unit of risk. The Sasol Ltd Bee is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  800,000  in Sasol Ltd Bee on December 2, 2024 and sell it today you would lose (290,000) from holding Sasol Ltd Bee or give up 36.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Europa Metals  vs.  Sasol Ltd Bee

Europa Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Europa Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Sasol Ltd Bee

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sasol Ltd Bee has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Sasol is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Europa Metals and Sasol

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

The idea behind Europa Metals and Sasol Ltd Bee 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.