Correlation Between Fortescue and Emetals

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

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

Diversification Opportunities for Fortescue and Emetals

-0.14

Correlation Coefficient

Fortescue  Emetals

Good diversification

The 3 months correlation between Fortescue and Emetals is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue and Emetals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emetals and Fortescue 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 Fortescue are associated (or correlated) with Emetals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emetals has no effect on the direction of Fortescue i.e., Fortescue and Emetals go up and down completely randomly.

Pair Corralation between Fortescue and Emetals

Assuming the 90 days trading horizon Fortescue is expected to under-perform the Emetals. But the stock apears to be less risky and, when comparing its historical volatility, Fortescue is 3.15 times less risky than Emetals. The stock trades about -0.01 of its potential returns per unit of risk. The Emetals is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  0.40  in Emetals on October 20, 2024 and sell it today you would earn a total of  0.00  from holding Emetals or generate 0.0% return on investment over 90 days.

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

Fortescue  vs.  Emetals

Fortescue

Risk-Adjusted Performance

0 of 100

Very Weak

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

Emetals

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Emetals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Emetals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fortescue and Emetals

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

The idea behind Fortescue and Emetals 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.