Correlation Between Highway 50 and CMC Metals

Can any of the company-specific risk be diversified away by investing in both Highway 50 and CMC Metals 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 Highway 50 and CMC Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Highway 50 Gold and CMC Metals, you can compare the effects of market volatilities on Highway 50 and CMC Metals 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 Highway 50 with a short position of CMC Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Highway 50 and CMC Metals.

Diversification Opportunities for Highway 50 and CMC Metals

-0.41

Correlation Coefficient

Highway 50  CMC Metals

Very good diversification

The 3 months correlation between Highway and CMC is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Highway 50 Gold and CMC Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMC Metals and Highway 50 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 Highway 50 Gold are associated (or correlated) with CMC Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMC Metals has no effect on the direction of Highway 50 i.e., Highway 50 and CMC Metals go up and down completely randomly.

Pair Corralation between Highway 50 and CMC Metals

Assuming the 90 days horizon Highway 50 Gold is expected to generate 2.25 times more return on investment than CMC Metals. However, Highway 50 is 2.25 times more volatile than CMC Metals. It trades about 0.09 of its potential returns per unit of risk. CMC Metals is currently generating about 0.06 per unit of risk. If you would invest  26.00  in Highway 50 Gold on December 26, 2024 and sell it today you would earn a total of  12.00  from holding Highway 50 Gold or generate 46.15% return on investment over 90 days.

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

Highway 50 Gold  vs.  CMC Metals

Highway 50 Gold

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Highway 50 Gold are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Highway 50 showed solid returns over the last few months and may actually be approaching a breakup point.

CMC Metals

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CMC Metals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, CMC Metals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Highway 50 and CMC Metals

The main advantage of trading using opposite Highway 50 and CMC Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Highway 50 position performs unexpectedly, CMC Metals 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 CMC Metals will offset losses from the drop in CMC Metals' long position.

The idea behind Highway 50 Gold and CMC Metals 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.