Correlation Between IT Link and Eramet SA

Can any of the company-specific risk be diversified away by investing in both IT Link and Eramet SA 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 IT Link and Eramet SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IT Link and Eramet SA, you can compare the effects of market volatilities on IT Link and Eramet SA 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 IT Link with a short position of Eramet SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of IT Link and Eramet SA.

Diversification Opportunities for IT Link and Eramet SA

-0.18

Correlation Coefficient

IT Link  Eramet SA

Good diversification

The 3 months correlation between ALITL and Eramet is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding IT Link and Eramet SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eramet SA and IT Link 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 IT Link are associated (or correlated) with Eramet SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eramet SA has no effect on the direction of IT Link i.e., IT Link and Eramet SA go up and down completely randomly.

Pair Corralation between IT Link and Eramet SA

Assuming the 90 days trading horizon IT Link is expected to generate 0.73 times more return on investment than Eramet SA. However, IT Link is 1.38 times less risky than Eramet SA. It trades about 0.0 of its potential returns per unit of risk. Eramet SA is currently generating about -0.15 per unit of risk. If you would invest  2,700  in IT Link on August 31, 2024 and sell it today you would lose (50.00) from holding IT Link or give up 1.85% of portfolio value over 90 days.

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

IT Link  vs.  Eramet SA

IT Link

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IT Link has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, IT Link is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Eramet SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eramet SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with IT Link and Eramet SA

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

The idea behind IT Link and Eramet SA 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..