Correlation Between IGO and First Energy

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

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

Diversification Opportunities for IGO and First Energy

0.61

Correlation Coefficient

IGO  First Energy

Poor diversification

The 3 months correlation between IGO and First is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding IGO Limited and First Energy Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Energy Metals and IGO 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 IGO Limited are associated (or correlated) with First Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Energy Metals has no effect on the direction of IGO i.e., IGO and First Energy go up and down completely randomly.

Pair Corralation between IGO and First Energy

Assuming the 90 days horizon IGO Limited is expected to under-perform the First Energy. But the pink sheet apears to be less risky and, when comparing its historical volatility, IGO Limited is 5.55 times less risky than First Energy. The pink sheet trades about -0.11 of its potential returns per unit of risk. The First Energy Metals is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3.80  in First Energy Metals on December 27, 2024 and sell it today you would lose (0.85) from holding First Energy Metals or give up 22.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

IGO Limited  vs.  First Energy Metals

IGO Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days IGO Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

First Energy Metals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First 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, First Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IGO and First Energy

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

The idea behind IGO Limited and First Energy 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.