Correlation Between Future Metals and London Stock

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

By analyzing existing cross correlation between Future Metals NL and London Stock Exchange, you can compare the effects of market volatilities on Future Metals and London Stock 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 Future Metals with a short position of London Stock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Future Metals and London Stock.

Diversification Opportunities for Future Metals and London Stock

-0.16

Correlation Coefficient

Future Metals  London Stock

Good diversification

The 3 months correlation between Future and London is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Future Metals NL and London Stock Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London Stock Exchange and Future Metals 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 Future Metals NL are associated (or correlated) with London Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London Stock Exchange has no effect on the direction of Future Metals i.e., Future Metals and London Stock go up and down completely randomly.

Pair Corralation between Future Metals and London Stock

Assuming the 90 days trading horizon Future Metals NL is expected to under-perform the London Stock. In addition to that, Future Metals is 2.8 times more volatile than London Stock Exchange. It trades about -0.01 of its total potential returns per unit of risk. London Stock Exchange is currently generating about 0.0 per unit of volatility. If you would invest  1,132,500  in London Stock Exchange on December 24, 2024 and sell it today you would lose (9,000) from holding London Stock Exchange or give up 0.79% of portfolio value over 90 days.

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

Future Metals NL  vs.  London Stock Exchange

Future Metals NL

Risk-Adjusted Performance

Very Weak

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

London Stock Exchange

Risk-Adjusted Performance

Very Weak

Over the last 90 days London Stock Exchange has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, London Stock is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Future Metals and London Stock

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

The idea behind Future Metals NL and London Stock Exchange 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.