Correlation Between First and River

Can any of the company-specific risk be diversified away by investing in both First and River 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 River 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 River and Mercantile, you can compare the effects of market volatilities on First and River 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 River. Check out your portfolio center. Please also check ongoing floating volatility patterns of First and River.

Diversification Opportunities for First and River

0.49

Correlation Coefficient

First  River

Very weak diversification

The 3 months correlation between First and River is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding First Class Metals and River and Mercantile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on River and Mercantile 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 River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of River and Mercantile has no effect on the direction of First i.e., First and River go up and down completely randomly.

Pair Corralation between First and River

Assuming the 90 days trading horizon First Class Metals is expected to under-perform the River. In addition to that, First is 19.43 times more volatile than River and Mercantile. It trades about -0.33 of its total potential returns per unit of risk. River and Mercantile is currently generating about -0.24 per unit of volatility. If you would invest  17,750  in River and Mercantile on October 9, 2024 and sell it today you would lose (150.00) from holding River and Mercantile or give up 0.85% of portfolio value over 90 days.

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

First Class Metals  vs.  River and Mercantile

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 unsteady 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.

River and Mercantile

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in River and Mercantile are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, River is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with First and River

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

The idea behind First Class Metals and River and Mercantile 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.