Correlation Between Stelar Metals and Iron Road

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

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

Diversification Opportunities for Stelar Metals and Iron Road

0.73

Correlation Coefficient

Stelar Metals  Iron Road

Poor diversification

The 3 months correlation between Stelar and Iron is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Stelar Metals and Iron Road in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iron Road and Stelar 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 Stelar Metals are associated (or correlated) with Iron Road. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iron Road has no effect on the direction of Stelar Metals i.e., Stelar Metals and Iron Road go up and down completely randomly.

Pair Corralation between Stelar Metals and Iron Road

Assuming the 90 days trading horizon Stelar Metals is expected to under-perform the Iron Road. In addition to that, Stelar Metals is 1.56 times more volatile than Iron Road. It trades about -0.02 of its total potential returns per unit of risk. Iron Road is currently generating about -0.01 per unit of volatility. If you would invest  9.00  in Iron Road on September 14, 2024 and sell it today you would lose (3.00) from holding Iron Road or give up 33.33% of portfolio value over 90 days.

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

Stelar Metals  vs.  Iron Road

Stelar Metals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Iron Road

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Stelar Metals and Iron Road

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

The idea behind Stelar Metals and Iron Road 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.