Correlation Between Methanex and First Graphene

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

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

Diversification Opportunities for Methanex and First Graphene

0.53

Correlation Coefficient

Methanex  First Graphene

Very weak diversification

The 3 months correlation between Methanex and First is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Methanex and First Graphene in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Graphene and Methanex 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 Methanex are associated (or correlated) with First Graphene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Graphene has no effect on the direction of Methanex i.e., Methanex and First Graphene go up and down completely randomly.

Pair Corralation between Methanex and First Graphene

Given the investment horizon of 90 days Methanex is expected to generate 16.45 times less return on investment than First Graphene. But when comparing it to its historical volatility, Methanex is 6.09 times less risky than First Graphene. It trades about 0.05 of its potential returns per unit of risk. First Graphene is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2.50  in First Graphene on November 20, 2024 and sell it today you would earn a total of  1.50  from holding First Graphene or generate 60.0% return on investment over 90 days.

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

Methanex  vs.  First Graphene

Methanex

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Methanex are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Methanex is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

First Graphene

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Graphene are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, First Graphene reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Methanex and First Graphene

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

The idea behind Methanex and First Graphene 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 Global Correlations module to find global opportunities by holding instruments from different markets.