Correlation Between Future Metals and Virgin Wines

Can any of the company-specific risk be diversified away by investing in both Future Metals and Virgin Wines 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 Virgin Wines 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 Virgin Wines UK, you can compare the effects of market volatilities on Future Metals and Virgin Wines 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 Virgin Wines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Future Metals and Virgin Wines.

Diversification Opportunities for Future Metals and Virgin Wines

-0.66

Correlation Coefficient

Future Metals  Virgin Wines

Excellent diversification

The 3 months correlation between Future and Virgin is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Future Metals NL and Virgin Wines UK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virgin Wines UK 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 Virgin Wines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virgin Wines UK has no effect on the direction of Future Metals i.e., Future Metals and Virgin Wines go up and down completely randomly.

Pair Corralation between Future Metals and Virgin Wines

Assuming the 90 days trading horizon Future Metals NL is expected to generate 2.51 times more return on investment than Virgin Wines. However, Future Metals is 2.51 times more volatile than Virgin Wines UK. It trades about 0.06 of its potential returns per unit of risk. Virgin Wines UK is currently generating about -0.26 per unit of risk. If you would invest  88.00  in Future Metals NL on September 3, 2024 and sell it today you would earn a total of  7.00  from holding Future Metals NL or generate 7.95% return on investment over 90 days.

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

Future Metals NL  vs.  Virgin Wines UK

Future Metals NL

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Future Metals NL are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Future Metals may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Virgin Wines UK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Virgin Wines UK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Future Metals and Virgin Wines

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

The idea behind Future Metals NL and Virgin Wines UK 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 Stocks Directory module to find actively traded stocks across global markets.