Correlation Between Commercial Vehicle and Sovereign Metals

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

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

Diversification Opportunities for Commercial Vehicle and Sovereign Metals

-0.44

Correlation Coefficient

Commercial Vehicle  Sovereign Metals

Very good diversification

The 3 months correlation between Commercial and Sovereign is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Commercial Vehicle Group and Sovereign Metals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sovereign Metals and Commercial Vehicle 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 Commercial Vehicle Group 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 Commercial Vehicle i.e., Commercial Vehicle and Sovereign Metals go up and down completely randomly.

Pair Corralation between Commercial Vehicle and Sovereign Metals

Assuming the 90 days trading horizon Commercial Vehicle Group is expected to under-perform the Sovereign Metals. In addition to that, Commercial Vehicle is 1.2 times more volatile than Sovereign Metals Limited. It trades about -0.1 of its total potential returns per unit of risk. Sovereign Metals Limited is currently generating about 0.05 per unit of volatility. If you would invest  42.00  in Sovereign Metals Limited on October 23, 2024 and sell it today you would earn a total of  3.00  from holding Sovereign Metals Limited or generate 7.14% return on investment over 90 days.

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

Commercial Vehicle Group  vs.  Sovereign Metals Limited

Commercial Vehicle

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Commercial Vehicle Group 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 basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Sovereign Metals

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Commercial Vehicle and Sovereign Metals

The main advantage of trading using opposite Commercial Vehicle and Sovereign Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commercial Vehicle 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 Commercial Vehicle Group and Sovereign 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.