Correlation Between Global Energy and First American

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

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

Diversification Opportunities for Global Energy and First American

0.0

Correlation Coefficient

Global Energy  First American

Pay attention - limited upside

The 3 months correlation between Global and First is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Global Energy Metals and First American Silver in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First American Silver and Global Energy 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 Global Energy Metals are associated (or correlated) with First American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First American Silver has no effect on the direction of Global Energy i.e., Global Energy and First American go up and down completely randomly.

Pair Corralation between Global Energy and First American

Assuming the 90 days horizon Global Energy Metals is expected to generate 1.68 times more return on investment than First American. However, Global Energy is 1.68 times more volatile than First American Silver. It trades about -0.02 of its potential returns per unit of risk. First American Silver is currently generating about -0.05 per unit of risk. If you would invest  6.07  in Global Energy Metals on September 12, 2024 and sell it today you would lose (4.71) from holding Global Energy Metals or give up 77.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.72%
Values	Daily Returns

Global Energy Metals  vs.  First American Silver

Global Energy Metals

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Global Energy Metals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Global Energy reported solid returns over the last few months and may actually be approaching a breakup point.

First American Silver

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First American Silver has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, First American is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Global Energy and First American

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

The idea behind Global Energy Metals and First American Silver 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.