Correlation Between Metals X and Forum Energy

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

Diversification Opportunities for Metals X and Forum Energy

-0.69

Correlation Coefficient

Metals X  Forum Energy

Excellent diversification

The 3 months correlation between Metals and Forum is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Metals X Limited and Forum Energy Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Forum Energy Metals 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 Forum Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Forum Energy Metals has no effect on the direction of Metals X i.e., Metals X and Forum Energy go up and down completely randomly.

Pair Corralation between Metals X and Forum Energy

Assuming the 90 days horizon Metals X Limited is expected to generate 0.62 times more return on investment than Forum Energy. However, Metals X Limited is 1.62 times less risky than Forum Energy. It trades about 0.17 of its potential returns per unit of risk. Forum Energy Metals is currently generating about -0.02 per unit of risk. If you would invest  23.00  in Metals X Limited on December 20, 2024 and sell it today you would earn a total of  18.00  from holding Metals X Limited or generate 78.26% return on investment over 90 days.

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

Metals X Limited  vs.  Forum Energy Metals

Metals X Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Metals X Limited are ranked lower than 13 (%) 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.

Forum Energy Metals

Risk-Adjusted Performance

Weak

Over the last 90 days Forum Energy Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Metals X and Forum Energy

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

The idea behind Metals X Limited and Forum Energy Metals 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.