Correlation Between Alien Metals and Equity Metals

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

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

Diversification Opportunities for Alien Metals and Equity Metals

0.03

Correlation Coefficient

Alien Metals  Equity Metals

Significant diversification

The 3 months correlation between Alien and Equity is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Alien Metals and Equity Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Metals and Alien 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 Alien Metals are associated (or correlated) with Equity Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Metals has no effect on the direction of Alien Metals i.e., Alien Metals and Equity Metals go up and down completely randomly.

Pair Corralation between Alien Metals and Equity Metals

Assuming the 90 days horizon Alien Metals is expected to generate 17.56 times more return on investment than Equity Metals. However, Alien Metals is 17.56 times more volatile than Equity Metals. It trades about 0.16 of its potential returns per unit of risk. Equity Metals is currently generating about 0.02 per unit of risk. If you would invest  0.11  in Alien Metals on September 3, 2024 and sell it today you would earn a total of  0.01  from holding Alien Metals or generate 9.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Alien Metals  vs.  Equity Metals

Alien Metals

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alien Metals are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Alien Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Equity Metals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Metals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Equity Metals may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Alien Metals and Equity Metals

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

The idea behind Alien Metals and Equity Metals 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.