Correlation Between Anglo American and Eramet SA

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

By analyzing existing cross correlation between Anglo American PLC and Eramet SA ADR, you can compare the effects of market volatilities on Anglo American and Eramet SA 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 Anglo American with a short position of Eramet SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anglo American and Eramet SA.

Diversification Opportunities for Anglo American and Eramet SA

-0.02

Correlation Coefficient

Anglo American  Eramet SA

Good diversification

The 3 months correlation between Anglo and Eramet is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Anglo American PLC and Eramet SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eramet SA ADR and Anglo American 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 Anglo American PLC are associated (or correlated) with Eramet SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eramet SA ADR has no effect on the direction of Anglo American i.e., Anglo American and Eramet SA go up and down completely randomly.

Pair Corralation between Anglo American and Eramet SA

Assuming the 90 days horizon Anglo American PLC is expected to generate 0.73 times more return on investment than Eramet SA. However, Anglo American PLC is 1.36 times less risky than Eramet SA. It trades about 0.03 of its potential returns per unit of risk. Eramet SA ADR is currently generating about -0.16 per unit of risk. If you would invest  1,462  in Anglo American PLC on August 30, 2024 and sell it today you would earn a total of  54.00  from holding Anglo American PLC or generate 3.69% return on investment over 90 days.

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

Anglo American PLC  vs.  Eramet SA ADR

Anglo American PLC

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Anglo American PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Anglo American is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Eramet SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eramet SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Anglo American and Eramet SA

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

The idea behind Anglo American PLC and Eramet SA ADR 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.