Correlation Between Europa Metals and Metals Exploration

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

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

Diversification Opportunities for Europa Metals and Metals Exploration

0.0

Correlation Coefficient

Europa Metals  Metals Exploration

Pay attention - limited upside

The 3 months correlation between Europa and Metals is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Europa Metals and Metals Exploration Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metals Exploration Plc 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 Metals Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metals Exploration Plc has no effect on the direction of Europa Metals i.e., Europa Metals and Metals Exploration go up and down completely randomly.

Pair Corralation between Europa Metals and Metals Exploration

Assuming the 90 days trading horizon Europa Metals is expected to generate 2.45 times less return on investment than Metals Exploration. But when comparing it to its historical volatility, Europa Metals is 1.08 times less risky than Metals Exploration. It trades about 0.04 of its potential returns per unit of risk. Metals Exploration Plc is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  285.00  in Metals Exploration Plc on October 7, 2024 and sell it today you would earn a total of  305.00  from holding Metals Exploration Plc or generate 107.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.56%
Values	Daily Returns

Europa Metals  vs.  Metals Exploration Plc

Europa Metals

Risk-Adjusted Performance

0 of 100

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 rather sound technical and fundamental indicators, Europa Metals is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Metals Exploration Plc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Metals Exploration Plc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Metals Exploration exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Europa Metals and Metals Exploration

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

The idea behind Europa Metals and Metals Exploration Plc 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.