Correlation Between Sovereign Metals and LVMH Mot

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

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

Diversification Opportunities for Sovereign Metals and LVMH Mot

-0.33

Correlation Coefficient

Sovereign Metals  LVMH Mot

Very good diversification

The 3 months correlation between Sovereign and LVMH is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Sovereign Metals Limited and LVMH Mot Hennessy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LVMH Mot Hennessy and Sovereign 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 Sovereign Metals Limited are associated (or correlated) with LVMH Mot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LVMH Mot Hennessy has no effect on the direction of Sovereign Metals i.e., Sovereign Metals and LVMH Mot go up and down completely randomly.

Pair Corralation between Sovereign Metals and LVMH Mot

Assuming the 90 days horizon Sovereign Metals Limited is expected to generate 1.74 times more return on investment than LVMH Mot. However, Sovereign Metals is 1.74 times more volatile than LVMH Mot Hennessy. It trades about 0.03 of its potential returns per unit of risk. LVMH Mot Hennessy is currently generating about -0.05 per unit of risk. If you would invest  43.00  in Sovereign Metals Limited on October 5, 2024 and sell it today you would earn a total of  1.00  from holding Sovereign Metals Limited or generate 2.33% return on investment over 90 days.

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

Sovereign Metals Limited  vs.  LVMH Mot Hennessy

Sovereign Metals

Risk-Adjusted Performance

0 of 100

Insignificant

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

LVMH Mot Hennessy

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Sovereign Metals and LVMH Mot

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

The idea behind Sovereign Metals Limited and LVMH Mot Hennessy 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.