Correlation Between 5E Advanced and G6 Materials

Can any of the company-specific risk be diversified away by investing in both 5E Advanced and G6 Materials 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 5E Advanced and G6 Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 5E Advanced Materials and G6 Materials Corp, you can compare the effects of market volatilities on 5E Advanced and G6 Materials 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 5E Advanced with a short position of G6 Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of 5E Advanced and G6 Materials.

Diversification Opportunities for 5E Advanced and G6 Materials

0.48

Correlation Coefficient

5E Advanced  G6 Materials

Very weak diversification

The 3 months correlation between FEAM and GPHBF is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding 5E Advanced Materials and G6 Materials Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on G6 Materials Corp and 5E Advanced 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 5E Advanced Materials are associated (or correlated) with G6 Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of G6 Materials Corp has no effect on the direction of 5E Advanced i.e., 5E Advanced and G6 Materials go up and down completely randomly.

Pair Corralation between 5E Advanced and G6 Materials

Given the investment horizon of 90 days 5E Advanced Materials is expected to under-perform the G6 Materials. But the stock apears to be less risky and, when comparing its historical volatility, 5E Advanced Materials is 1.83 times less risky than G6 Materials. The stock trades about -0.08 of its potential returns per unit of risk. The G6 Materials Corp is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  5.60  in G6 Materials Corp on September 3, 2024 and sell it today you would lose (2.60) from holding G6 Materials Corp or give up 46.43% of portfolio value over 90 days.

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

5E Advanced Materials  vs.  G6 Materials Corp

5E Advanced Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days 5E Advanced Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

G6 Materials Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days G6 Materials Corp 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 fundamental drivers remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with 5E Advanced and G6 Materials

The main advantage of trading using opposite 5E Advanced and G6 Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 5E Advanced position performs unexpectedly, G6 Materials 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 G6 Materials will offset losses from the drop in G6 Materials' long position.

The idea behind 5E Advanced Materials and G6 Materials Corp 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.