Correlation Between Sky Metals and Falcon Metals

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

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

Diversification Opportunities for Sky Metals and Falcon Metals

0.19

Correlation Coefficient

Sky Metals  Falcon Metals

Average diversification

The 3 months correlation between Sky and Falcon is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Sky Metals and Falcon Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falcon Metals and Sky 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 Sky Metals are associated (or correlated) with Falcon Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falcon Metals has no effect on the direction of Sky Metals i.e., Sky Metals and Falcon Metals go up and down completely randomly.

Pair Corralation between Sky Metals and Falcon Metals

Assuming the 90 days trading horizon Sky Metals is expected to under-perform the Falcon Metals. But the stock apears to be less risky and, when comparing its historical volatility, Sky Metals is 2.07 times less risky than Falcon Metals. The stock trades about -0.03 of its potential returns per unit of risk. The Falcon Metals is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  12.00  in Falcon Metals on December 28, 2024 and sell it today you would earn a total of  1.00  from holding Falcon Metals or generate 8.33% return on investment over 90 days.

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

Sky Metals  vs.  Falcon Metals

Sky Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sky Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Sky Metals is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Falcon Metals

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Falcon Metals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, Falcon Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sky Metals and Falcon Metals

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

The idea behind Sky Metals and Falcon 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 Transaction History module to view history of all your transactions and understand their impact on performance.