Correlation Between IGO and Sterling Metals

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

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

Diversification Opportunities for IGO and Sterling Metals

-0.52

Correlation Coefficient

IGO  Sterling Metals

Excellent diversification

The 3 months correlation between IGO and Sterling is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding IGO Limited and Sterling Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Metals Corp 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 Sterling Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Metals Corp has no effect on the direction of IGO i.e., IGO and Sterling Metals go up and down completely randomly.

Pair Corralation between IGO and Sterling Metals

Assuming the 90 days horizon IGO Limited is expected to under-perform the Sterling Metals. But the pink sheet apears to be less risky and, when comparing its historical volatility, IGO Limited is 4.08 times less risky than Sterling Metals. The pink sheet trades about -0.07 of its potential returns per unit of risk. The Sterling Metals Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5.30  in Sterling Metals Corp on September 12, 2024 and sell it today you would lose (3.17) from holding Sterling Metals Corp or give up 59.81% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.72%
Values	Daily Returns

IGO Limited  vs.  Sterling Metals Corp

IGO Limited

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IGO Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental indicators, IGO may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sterling Metals Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sterling Metals Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with IGO and Sterling Metals

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

The idea behind IGO Limited and Sterling Metals Corp 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.