Correlation Between Capital Metals and Empire Metals

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

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

Diversification Opportunities for Capital Metals and Empire Metals

0.06

Correlation Coefficient

Capital Metals  Empire Metals

Significant diversification

The 3 months correlation between Capital and Empire is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Capital Metals PLC and Empire Metals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Empire Metals Limited and Capital 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 Capital Metals PLC are associated (or correlated) with Empire Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Empire Metals Limited has no effect on the direction of Capital Metals i.e., Capital Metals and Empire Metals go up and down completely randomly.

Pair Corralation between Capital Metals and Empire Metals

Assuming the 90 days trading horizon Capital Metals PLC is expected to under-perform the Empire Metals. In addition to that, Capital Metals is 1.43 times more volatile than Empire Metals Limited. It trades about -0.03 of its total potential returns per unit of risk. Empire Metals Limited is currently generating about -0.03 per unit of volatility. If you would invest  1,155  in Empire Metals Limited on September 4, 2024 and sell it today you would lose (530.00) from holding Empire Metals Limited or give up 45.89% of portfolio value over 90 days.

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

Capital Metals PLC  vs.  Empire Metals Limited

Capital Metals PLC

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Metals PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Capital Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Empire Metals Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Empire Metals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Capital Metals and Empire Metals

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

The idea behind Capital Metals PLC and Empire Metals Limited 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.