Correlation Between Central Asia and RHI Magnesita

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

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

Diversification Opportunities for Central Asia and RHI Magnesita

0.82

Correlation Coefficient

Central Asia  RHI Magnesita

Very poor diversification

The 3 months correlation between Central and RHI is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Central Asia Metals and RHI Magnesita NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RHI Magnesita NV and Central Asia 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 Central Asia Metals are associated (or correlated) with RHI Magnesita. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RHI Magnesita NV has no effect on the direction of Central Asia i.e., Central Asia and RHI Magnesita go up and down completely randomly.

Pair Corralation between Central Asia and RHI Magnesita

Assuming the 90 days trading horizon Central Asia Metals is expected to under-perform the RHI Magnesita. In addition to that, Central Asia is 1.09 times more volatile than RHI Magnesita NV. It trades about -0.06 of its total potential returns per unit of risk. RHI Magnesita NV is currently generating about -0.01 per unit of volatility. If you would invest  320,500  in RHI Magnesita NV on September 13, 2024 and sell it today you would lose (4,000) from holding RHI Magnesita NV or give up 1.25% of portfolio value over 90 days.

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

Central Asia Metals  vs.  RHI Magnesita NV

Central Asia Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Central Asia Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Central Asia is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

RHI Magnesita NV

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days RHI Magnesita NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, RHI Magnesita is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Central Asia and RHI Magnesita

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

The idea behind Central Asia Metals and RHI Magnesita NV 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.