Correlation Between Central Asia and Sovereign Metals

Can any of the company-specific risk be diversified away by investing in both Central Asia and Sovereign 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 Central Asia and Sovereign Metals 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 Sovereign Metals, you can compare the effects of market volatilities on Central Asia and Sovereign 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 Central Asia with a short position of Sovereign Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Asia and Sovereign Metals.

Diversification Opportunities for Central Asia and Sovereign Metals

-0.4

Correlation Coefficient

Central Asia  Sovereign Metals

Very good diversification

The 3 months correlation between Central and Sovereign is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Central Asia Metals and Sovereign Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sovereign Metals 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 Sovereign Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sovereign Metals has no effect on the direction of Central Asia i.e., Central Asia and Sovereign Metals go up and down completely randomly.

Pair Corralation between Central Asia and Sovereign Metals

Assuming the 90 days trading horizon Central Asia Metals is expected to under-perform the Sovereign Metals. But the stock apears to be less risky and, when comparing its historical volatility, Central Asia Metals is 1.72 times less risky than Sovereign Metals. The stock trades about -0.09 of its potential returns per unit of risk. The Sovereign Metals is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,350  in Sovereign Metals on August 31, 2024 and sell it today you would earn a total of  700.00  from holding Sovereign Metals or generate 20.9% return on investment over 90 days.

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

Central Asia Metals  vs.  Sovereign Metals

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 latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Sovereign Metals

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Central Asia and Sovereign Metals

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

The idea behind Central Asia Metals and Sovereign 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.