Correlation Between CMC Metals and Western Alaska

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

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

Diversification Opportunities for CMC Metals and Western Alaska

0.24

Correlation Coefficient

CMC Metals  Western Alaska

Modest diversification

The 3 months correlation between CMC and Western is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding CMC Metals and Western Alaska Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Alaska Minerals and CMC 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 CMC Metals are associated (or correlated) with Western Alaska. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Alaska Minerals has no effect on the direction of CMC Metals i.e., CMC Metals and Western Alaska go up and down completely randomly.

Pair Corralation between CMC Metals and Western Alaska

Assuming the 90 days horizon CMC Metals is expected to generate 5.09 times more return on investment than Western Alaska. However, CMC Metals is 5.09 times more volatile than Western Alaska Minerals. It trades about 0.17 of its potential returns per unit of risk. Western Alaska Minerals is currently generating about -0.01 per unit of risk. If you would invest  1.00  in CMC Metals on September 2, 2024 and sell it today you would earn a total of  0.42  from holding CMC Metals or generate 42.0% return on investment over 90 days.

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

CMC Metals  vs.  Western Alaska Minerals

CMC Metals

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CMC Metals are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CMC Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Western Alaska Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Alaska Minerals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Western Alaska is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CMC Metals and Western Alaska

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

The idea behind CMC Metals and Western Alaska Minerals 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.