Correlation Between First and Sovereign Metals

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

Diversification Opportunities for First and Sovereign Metals

0.54

Correlation Coefficient

First  Sovereign Metals

Very weak diversification

The 3 months correlation between First and Sovereign is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding First Class Metals and Sovereign Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sovereign Metals 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 Sovereign Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sovereign Metals has no effect on the direction of First i.e., First and Sovereign Metals go up and down completely randomly.

Pair Corralation between First and Sovereign Metals

Assuming the 90 days trading horizon First Class Metals is expected to under-perform the Sovereign Metals. In addition to that, First is 2.06 times more volatile than Sovereign Metals. It trades about -0.04 of its total potential returns per unit of risk. Sovereign Metals is currently generating about 0.06 per unit of volatility. If you would invest  3,550  in Sovereign Metals on October 9, 2024 and sell it today you would earn a total of  250.00  from holding Sovereign Metals or generate 7.04% return on investment over 90 days.

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

First Class Metals  vs.  Sovereign Metals

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.

Sovereign Metals

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sovereign Metals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sovereign Metals may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with First and Sovereign Metals

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

The idea behind First Class Metals and Sovereign Metals 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..