Correlation Between Metro Mining and Ava Risk

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

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

Diversification Opportunities for Metro Mining and Ava Risk

0.42

Correlation Coefficient

Metro Mining  Ava Risk

Very weak diversification

The 3 months correlation between Metro and Ava is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Metro Mining and Ava Risk Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ava Risk Group and Metro 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 Metro Mining are associated (or correlated) with Ava Risk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ava Risk Group has no effect on the direction of Metro Mining i.e., Metro Mining and Ava Risk go up and down completely randomly.

Pair Corralation between Metro Mining and Ava Risk

Assuming the 90 days trading horizon Metro Mining is expected to generate 0.61 times more return on investment than Ava Risk. However, Metro Mining is 1.64 times less risky than Ava Risk. It trades about -0.06 of its potential returns per unit of risk. Ava Risk Group is currently generating about -0.08 per unit of risk. If you would invest  6.20  in Metro Mining on October 6, 2024 and sell it today you would lose (0.20) from holding Metro Mining or give up 3.23% of portfolio value over 90 days.

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

Metro Mining  vs.  Ava Risk Group

Metro Mining

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Mining are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Metro Mining unveiled solid returns over the last few months and may actually be approaching a breakup point.

Ava Risk Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ava Risk Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Ava Risk may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Metro Mining and Ava Risk

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

The idea behind Metro Mining and Ava Risk Group 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..