Correlation Between FG Merger and Metals Acquisition

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

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

Diversification Opportunities for FG Merger and Metals Acquisition

0.39

Correlation Coefficient

FG Merger  Metals Acquisition

Weak diversification

The 3 months correlation between FGMC and Metals is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding FG Merger II and Metals Acquisition Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metals Acquisition and FG Merger 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 FG Merger II are associated (or correlated) with Metals Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metals Acquisition has no effect on the direction of FG Merger i.e., FG Merger and Metals Acquisition go up and down completely randomly.

Pair Corralation between FG Merger and Metals Acquisition

Given the investment horizon of 90 days FG Merger II is expected to generate 0.05 times more return on investment than Metals Acquisition. However, FG Merger II is 20.86 times less risky than Metals Acquisition. It trades about -0.15 of its potential returns per unit of risk. Metals Acquisition Limited is currently generating about -0.01 per unit of risk. If you would invest  965.00  in FG Merger II on December 27, 2024 and sell it today you would lose (6.00) from holding FG Merger II or give up 0.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	52.46%
Values	Daily Returns

FG Merger II  vs.  Metals Acquisition Limited

FG Merger II

Risk-Adjusted Performance

Very Weak

Over the last 90 days FG Merger II has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, FG Merger is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Metals Acquisition

Risk-Adjusted Performance

Very Weak

Over the last 90 days Metals Acquisition Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Metals Acquisition is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with FG Merger and Metals Acquisition

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

The idea behind FG Merger II and Metals Acquisition 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.