Correlation Between United Tractors and Eramet SA

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

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

Diversification Opportunities for United Tractors and Eramet SA

0.1

Correlation Coefficient

United Tractors  Eramet SA

Average diversification

The 3 months correlation between United and Eramet is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding United Tractors Tbk 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 United Tractors 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 United Tractors Tbk 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 United Tractors i.e., United Tractors and Eramet SA go up and down completely randomly.

Pair Corralation between United Tractors and Eramet SA

Assuming the 90 days horizon United Tractors Tbk is expected to under-perform the Eramet SA. In addition to that, United Tractors is 1.47 times more volatile than Eramet SA ADR. It trades about -0.09 of its total potential returns per unit of risk. Eramet SA ADR is currently generating about 0.05 per unit of volatility. If you would invest  570.00  in Eramet SA ADR on October 9, 2024 and sell it today you would earn a total of  12.00  from holding Eramet SA ADR or generate 2.11% return on investment over 90 days.

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

United Tractors Tbk  vs.  Eramet SA ADR

United Tractors Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Tractors Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, United Tractors 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with United Tractors and Eramet SA

The main advantage of trading using opposite United Tractors and Eramet SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Tractors 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 United Tractors Tbk 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.