Correlation Between Leading Edge and Focus Graphite

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

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

Diversification Opportunities for Leading Edge and Focus Graphite

0.44

Correlation Coefficient

Leading Edge  Focus Graphite

Very weak diversification

The 3 months correlation between Leading and Focus is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Leading Edge Materials and Focus Graphite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Focus Graphite and Leading Edge 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 Leading Edge Materials are associated (or correlated) with Focus Graphite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Focus Graphite has no effect on the direction of Leading Edge i.e., Leading Edge and Focus Graphite go up and down completely randomly.

Pair Corralation between Leading Edge and Focus Graphite

Assuming the 90 days horizon Leading Edge is expected to generate 3.16 times less return on investment than Focus Graphite. But when comparing it to its historical volatility, Leading Edge Materials is 1.78 times less risky than Focus Graphite. It trades about 0.02 of its potential returns per unit of risk. Focus Graphite is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  8.00  in Focus Graphite on September 27, 2024 and sell it today you would earn a total of  0.00  from holding Focus Graphite or generate 0.0% return on investment over 90 days.

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

Leading Edge Materials  vs.  Focus Graphite

Leading Edge Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leading Edge Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Focus Graphite

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Focus Graphite has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Leading Edge and Focus Graphite

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

The idea behind Leading Edge Materials and Focus Graphite 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.