Correlation Between METALL ZUG and Baltic Panamax

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

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

Diversification Opportunities for METALL ZUG and Baltic Panamax

0.77

Correlation Coefficient

METALL ZUG  Baltic Panamax

Poor diversification

The 3 months correlation between METALL and Baltic is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding METALL ZUG AG and Baltic Panamax in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baltic Panamax and METALL ZUG 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 METALL ZUG AG are associated (or correlated) with Baltic Panamax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baltic Panamax has no effect on the direction of METALL ZUG i.e., METALL ZUG and Baltic Panamax go up and down completely randomly.

Pair Corralation between METALL ZUG and Baltic Panamax

Assuming the 90 days trading horizon METALL ZUG AG is expected to generate 0.49 times more return on investment than Baltic Panamax. However, METALL ZUG AG is 2.05 times less risky than Baltic Panamax. It trades about -0.09 of its potential returns per unit of risk. Baltic Panamax is currently generating about -0.29 per unit of risk. If you would invest  120,500  in METALL ZUG AG on September 18, 2024 and sell it today you would lose (6,000) from holding METALL ZUG AG or give up 4.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.92%
Values	Daily Returns

METALL ZUG AG  vs.  Baltic Panamax

Pair Trading with METALL ZUG and Baltic Panamax

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

The idea behind METALL ZUG AG and Baltic Panamax 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.