Correlation Between South Star and Critical Elements

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

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

Diversification Opportunities for South Star and Critical Elements

-0.46

Correlation Coefficient

South Star  Critical Elements

Very good diversification

The 3 months correlation between South and Critical is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding South Star Battery and Critical Elements in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Critical Elements and South Star 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 South Star Battery are associated (or correlated) with Critical Elements. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Critical Elements has no effect on the direction of South Star i.e., South Star and Critical Elements go up and down completely randomly.

Pair Corralation between South Star and Critical Elements

Assuming the 90 days horizon South Star is expected to generate 13.39 times less return on investment than Critical Elements. In addition to that, South Star is 1.25 times more volatile than Critical Elements. It trades about 0.01 of its total potential returns per unit of risk. Critical Elements is currently generating about 0.15 per unit of volatility. If you would invest  28.00  in Critical Elements on December 1, 2024 and sell it today you would earn a total of  16.00  from holding Critical Elements or generate 57.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

South Star Battery  vs.  Critical Elements

South Star Battery

Risk-Adjusted Performance

Very Weak

Over the last 90 days South Star Battery has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, South Star is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Critical Elements

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Critical Elements are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Critical Elements reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with South Star and Critical Elements

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

The idea behind South Star Battery and Critical Elements 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.