Correlation Between Scope Metals and Computer Direct

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

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

Diversification Opportunities for Scope Metals and Computer Direct

0.06

Correlation Coefficient

Scope Metals  Computer Direct

Significant diversification

The 3 months correlation between Scope and Computer is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Scope Metals Group and Computer Direct in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Computer Direct and Scope Metals 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 Scope Metals Group are associated (or correlated) with Computer Direct. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Computer Direct has no effect on the direction of Scope Metals i.e., Scope Metals and Computer Direct go up and down completely randomly.

Pair Corralation between Scope Metals and Computer Direct

Assuming the 90 days trading horizon Scope Metals Group is expected to under-perform the Computer Direct. But the stock apears to be less risky and, when comparing its historical volatility, Scope Metals Group is 1.37 times less risky than Computer Direct. The stock trades about -0.06 of its potential returns per unit of risk. The Computer Direct is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3,926,000  in Computer Direct on December 30, 2024 and sell it today you would lose (96,000) from holding Computer Direct or give up 2.45% of portfolio value over 90 days.

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

Scope Metals Group  vs.  Computer Direct

Scope Metals Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Scope Metals Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Computer Direct

Risk-Adjusted Performance

Very Weak

Over the last 90 days Computer Direct has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Computer Direct is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Scope Metals and Computer Direct

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

The idea behind Scope Metals Group and Computer Direct 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.