Correlation Between Sovereign Metals and Cairo Communication

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

By analyzing existing cross correlation between Sovereign Metals and Cairo Communication SpA, you can compare the effects of market volatilities on Sovereign Metals and Cairo Communication 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 Cairo Communication. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sovereign Metals and Cairo Communication.

Diversification Opportunities for Sovereign Metals and Cairo Communication

0.73

Correlation Coefficient

Sovereign Metals  Cairo Communication

Poor diversification

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

Pair Corralation between Sovereign Metals and Cairo Communication

Assuming the 90 days trading horizon Sovereign Metals is expected to generate 1.65 times less return on investment than Cairo Communication. In addition to that, Sovereign Metals is 1.41 times more volatile than Cairo Communication SpA. It trades about 0.08 of its total potential returns per unit of risk. Cairo Communication SpA is currently generating about 0.19 per unit of volatility. If you would invest  236.00  in Cairo Communication SpA on December 2, 2024 and sell it today you would earn a total of  44.00  from holding Cairo Communication SpA or generate 18.64% return on investment over 90 days.

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

Sovereign Metals  vs.  Cairo Communication SpA

Sovereign Metals

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sovereign Metals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sovereign Metals may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Cairo Communication SpA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cairo Communication SpA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Cairo Communication unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sovereign Metals and Cairo Communication

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

The idea behind Sovereign Metals and Cairo Communication SpA 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.