Correlation Between EasyJet PLC and Empire Metals

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

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

Diversification Opportunities for EasyJet PLC and Empire Metals

-0.32

Correlation Coefficient

EasyJet PLC  Empire Metals

Very good diversification

The 3 months correlation between EasyJet and Empire is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding EasyJet PLC and Empire Metals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Empire Metals Limited and EasyJet PLC 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 EasyJet PLC are associated (or correlated) with Empire Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Empire Metals Limited has no effect on the direction of EasyJet PLC i.e., EasyJet PLC and Empire Metals go up and down completely randomly.

Pair Corralation between EasyJet PLC and Empire Metals

Assuming the 90 days trading horizon EasyJet PLC is expected to generate 0.58 times more return on investment than Empire Metals. However, EasyJet PLC is 1.72 times less risky than Empire Metals. It trades about 0.1 of its potential returns per unit of risk. Empire Metals Limited is currently generating about -0.11 per unit of risk. If you would invest  51,280  in EasyJet PLC on September 23, 2024 and sell it today you would earn a total of  5,880  from holding EasyJet PLC or generate 11.47% return on investment over 90 days.

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

EasyJet PLC  vs.  Empire Metals Limited

EasyJet PLC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EasyJet PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, EasyJet PLC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Empire Metals Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Empire Metals Limited 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 January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with EasyJet PLC and Empire Metals

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

The idea behind EasyJet PLC and Empire Metals Limited 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.