Correlation Between Forum Energy and Adriatic Metals

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

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

Diversification Opportunities for Forum Energy and Adriatic Metals

0.4

Correlation Coefficient

Forum Energy  Adriatic Metals

Very weak diversification

The 3 months correlation between Forum and Adriatic is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Forum Energy Metals and Adriatic Metals Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adriatic Metals Plc and Forum Energy 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 Forum Energy Metals are associated (or correlated) with Adriatic Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adriatic Metals Plc has no effect on the direction of Forum Energy i.e., Forum Energy and Adriatic Metals go up and down completely randomly.

Pair Corralation between Forum Energy and Adriatic Metals

Assuming the 90 days horizon Forum Energy Metals is expected to generate 1.99 times more return on investment than Adriatic Metals. However, Forum Energy is 1.99 times more volatile than Adriatic Metals Plc. It trades about 0.02 of its potential returns per unit of risk. Adriatic Metals Plc is currently generating about 0.02 per unit of risk. If you would invest  8.00  in Forum Energy Metals on October 11, 2024 and sell it today you would lose (3.50) from holding Forum Energy Metals or give up 43.75% of portfolio value over 90 days.

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

Forum Energy Metals  vs.  Adriatic Metals Plc

Forum Energy Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Forum Energy Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Adriatic Metals Plc

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Adriatic Metals Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Forum Energy and Adriatic Metals

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

The idea behind Forum Energy Metals and Adriatic Metals 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.