Correlation Between Anglo American and Trilogy Metals

Can any of the company-specific risk be diversified away by investing in both Anglo American and Trilogy 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 Anglo American and Trilogy Metals 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 Trilogy Metals, you can compare the effects of market volatilities on Anglo American and Trilogy 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 Anglo American with a short position of Trilogy Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anglo American and Trilogy Metals.

Diversification Opportunities for Anglo American and Trilogy Metals

0.23

Correlation Coefficient

Anglo American  Trilogy Metals

Modest diversification

The 3 months correlation between Anglo and Trilogy is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Anglo American PLC and Trilogy Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trilogy Metals 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 Trilogy Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trilogy Metals has no effect on the direction of Anglo American i.e., Anglo American and Trilogy Metals go up and down completely randomly.

Pair Corralation between Anglo American and Trilogy Metals

Assuming the 90 days horizon Anglo American is expected to generate 46.8 times less return on investment than Trilogy Metals. But when comparing it to its historical volatility, Anglo American PLC is 2.7 times less risky than Trilogy Metals. It trades about 0.01 of its potential returns per unit of risk. Trilogy Metals is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  114.00  in Trilogy Metals on December 29, 2024 and sell it today you would earn a total of  54.00  from holding Trilogy Metals or generate 47.37% return on investment over 90 days.

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

Anglo American PLC  vs.  Trilogy Metals

Anglo American PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Anglo American PLC has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Trilogy Metals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trilogy Metals are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak primary indicators, Trilogy Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Anglo American and Trilogy Metals

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

The idea behind Anglo American PLC and Trilogy 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.