Correlation Between South32 and FireFly Metals

Can any of the company-specific risk be diversified away by investing in both South32 and FireFly 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 South32 and FireFly Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between South32 and FireFly Metals, you can compare the effects of market volatilities on South32 and FireFly 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 South32 with a short position of FireFly Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of South32 and FireFly Metals.

Diversification Opportunities for South32 and FireFly Metals

0.67

Correlation Coefficient

South32  FireFly Metals

Poor diversification

The 3 months correlation between South32 and FireFly is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding South32 and FireFly Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FireFly Metals and South32 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 South32 are associated (or correlated) with FireFly Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FireFly Metals has no effect on the direction of South32 i.e., South32 and FireFly Metals go up and down completely randomly.

Pair Corralation between South32 and FireFly Metals

Assuming the 90 days trading horizon South32 is expected to generate 11.91 times less return on investment than FireFly Metals. But when comparing it to its historical volatility, South32 is 2.17 times less risky than FireFly Metals. It trades about 0.01 of its potential returns per unit of risk. FireFly Metals is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  90.00  in FireFly Metals on December 30, 2024 and sell it today you would earn a total of  13.00  from holding FireFly Metals or generate 14.44% return on investment over 90 days.

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

South32  vs.  FireFly Metals

South32

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in South32 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, South32 is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

FireFly Metals

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FireFly Metals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, FireFly Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with South32 and FireFly Metals

The main advantage of trading using opposite South32 and FireFly Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if South32 position performs unexpectedly, FireFly 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 FireFly Metals will offset losses from the drop in FireFly Metals' long position.

The idea behind South32 and FireFly 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.