Correlation Between Asia Metal and Golden Friends

Can any of the company-specific risk be diversified away by investing in both Asia Metal and Golden Friends 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 Asia Metal and Golden Friends into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Asia Metal Industries and Golden Friends, you can compare the effects of market volatilities on Asia Metal and Golden Friends 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 Asia Metal with a short position of Golden Friends. Check out your portfolio center. Please also check ongoing floating volatility patterns of Asia Metal and Golden Friends.

Diversification Opportunities for Asia Metal and Golden Friends

0.43

Correlation Coefficient

Asia Metal  Golden Friends

Very weak diversification

The 3 months correlation between Asia and Golden is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Asia Metal Industries and Golden Friends in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Golden Friends and Asia Metal 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 Asia Metal Industries are associated (or correlated) with Golden Friends. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Golden Friends has no effect on the direction of Asia Metal i.e., Asia Metal and Golden Friends go up and down completely randomly.

Pair Corralation between Asia Metal and Golden Friends

Assuming the 90 days trading horizon Asia Metal Industries is expected to generate 3.74 times more return on investment than Golden Friends. However, Asia Metal is 3.74 times more volatile than Golden Friends. It trades about 0.13 of its potential returns per unit of risk. Golden Friends is currently generating about 0.05 per unit of risk. If you would invest  7,130  in Asia Metal Industries on September 3, 2024 and sell it today you would earn a total of  1,670  from holding Asia Metal Industries or generate 23.42% return on investment over 90 days.

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

Asia Metal Industries  vs.  Golden Friends

Asia Metal Industries

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Asia Metal Industries are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Asia Metal showed solid returns over the last few months and may actually be approaching a breakup point.

Golden Friends

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Golden Friends are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Golden Friends is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Asia Metal and Golden Friends

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

The idea behind Asia Metal Industries and Golden Friends 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.