Correlation Between First and Future Metals

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

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

Diversification Opportunities for First and Future Metals

0.21

Correlation Coefficient

First  Future Metals

Modest diversification

The 3 months correlation between First and Future is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding First Class Metals and Future Metals NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Future Metals NL and First 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 First Class Metals are associated (or correlated) with Future Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Future Metals NL has no effect on the direction of First i.e., First and Future Metals go up and down completely randomly.

Pair Corralation between First and Future Metals

Assuming the 90 days trading horizon First Class Metals is expected to generate 1.26 times more return on investment than Future Metals. However, First is 1.26 times more volatile than Future Metals NL. It trades about -0.25 of its potential returns per unit of risk. Future Metals NL is currently generating about -0.44 per unit of risk. If you would invest  220.00  in First Class Metals on October 11, 2024 and sell it today you would lose (40.00) from holding First Class Metals or give up 18.18% of portfolio value over 90 days.

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

First Class Metals  vs.  Future Metals NL

First Class Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Class Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Future Metals NL

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with First and Future Metals

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

The idea behind First Class Metals and Future Metals NL 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.