Correlation Between Metals X and Adriatic Metals

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

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

Diversification Opportunities for Metals X and Adriatic Metals

0.35

Correlation Coefficient

Metals X  Adriatic Metals

Weak diversification

The 3 months correlation between Metals and Adriatic is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Metals X Limited and Adriatic Metals Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adriatic Metals Plc and Metals X 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 Metals X Limited are associated (or correlated) with Adriatic Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adriatic Metals Plc has no effect on the direction of Metals X i.e., Metals X and Adriatic Metals go up and down completely randomly.

Pair Corralation between Metals X and Adriatic Metals

Assuming the 90 days horizon Metals X Limited is expected to generate 1.66 times more return on investment than Adriatic Metals. However, Metals X is 1.66 times more volatile than Adriatic Metals Plc. It trades about 0.1 of its potential returns per unit of risk. Adriatic Metals Plc is currently generating about 0.03 per unit of risk. If you would invest  27.00  in Metals X Limited on November 30, 2024 and sell it today you would earn a total of  8.00  from holding Metals X Limited or generate 29.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Metals X Limited  vs.  Adriatic Metals Plc

Metals X Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Metals X Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Metals X reported solid returns over the last few months and may actually be approaching a breakup point.

Adriatic Metals Plc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Adriatic Metals Plc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Adriatic Metals may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Metals X and Adriatic Metals

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

The idea behind Metals X Limited and Adriatic Metals Plc 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.