Correlation Between M3 Mining and Wam Capital

Can any of the company-specific risk be diversified away by investing in both M3 Mining and Wam Capital 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 M3 Mining and Wam Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between M3 Mining and Wam Capital, you can compare the effects of market volatilities on M3 Mining and Wam Capital 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 M3 Mining with a short position of Wam Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of M3 Mining and Wam Capital.

Diversification Opportunities for M3 Mining and Wam Capital

0.81

Correlation Coefficient

M3 Mining  Wam Capital

Very poor diversification

The 3 months correlation between M3M and Wam is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding M3 Mining and Wam Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wam Capital and M3 Mining 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 M3 Mining are associated (or correlated) with Wam Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wam Capital has no effect on the direction of M3 Mining i.e., M3 Mining and Wam Capital go up and down completely randomly.

Pair Corralation between M3 Mining and Wam Capital

Assuming the 90 days trading horizon M3 Mining is expected to generate 6.89 times more return on investment than Wam Capital. However, M3 Mining is 6.89 times more volatile than Wam Capital. It trades about 0.06 of its potential returns per unit of risk. Wam Capital is currently generating about 0.08 per unit of risk. If you would invest  3.50  in M3 Mining on December 27, 2024 and sell it today you would earn a total of  0.40  from holding M3 Mining or generate 11.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

M3 Mining  vs.  Wam Capital

M3 Mining

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in M3 Mining are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, M3 Mining unveiled solid returns over the last few months and may actually be approaching a breakup point.

Wam Capital

Risk-Adjusted Performance

OK

Over the last 90 days Wam Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Wam Capital is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with M3 Mining and Wam Capital

The main advantage of trading using opposite M3 Mining and Wam Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if M3 Mining position performs unexpectedly, Wam Capital 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 Wam Capital will offset losses from the drop in Wam Capital's long position.

The idea behind M3 Mining and Wam Capital 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.