Correlation Between Metals X and Cobalt Blue

Can any of the company-specific risk be diversified away by investing in both Metals X and Cobalt Blue 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 Cobalt Blue 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 Cobalt Blue Holdings, you can compare the effects of market volatilities on Metals X and Cobalt Blue 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 Cobalt Blue. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metals X and Cobalt Blue.

Diversification Opportunities for Metals X and Cobalt Blue

0.27

Correlation Coefficient

Metals X  Cobalt Blue

Modest diversification

The 3 months correlation between Metals and Cobalt is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Metals X Limited and Cobalt Blue Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cobalt Blue Holdings 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 Cobalt Blue. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cobalt Blue Holdings has no effect on the direction of Metals X i.e., Metals X and Cobalt Blue go up and down completely randomly.

Pair Corralation between Metals X and Cobalt Blue

Assuming the 90 days horizon Metals X Limited is expected to generate 0.54 times more return on investment than Cobalt Blue. However, Metals X Limited is 1.84 times less risky than Cobalt Blue. It trades about 0.06 of its potential returns per unit of risk. Cobalt Blue Holdings is currently generating about -0.01 per unit of risk. If you would invest  24.00  in Metals X Limited on September 4, 2024 and sell it today you would earn a total of  3.00  from holding Metals X Limited or generate 12.5% return on investment over 90 days.

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

Metals X Limited  vs.  Cobalt Blue Holdings

Metals X Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Metals X Limited are ranked lower than 4 (%) 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.

Cobalt Blue Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cobalt Blue Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Cobalt Blue is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Metals X and Cobalt Blue

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

The idea behind Metals X Limited and Cobalt Blue Holdings 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.