Correlation Between Copper Fox and Hot Chili

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

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

Diversification Opportunities for Copper Fox and Hot Chili

-0.19

Correlation Coefficient

Copper Fox  Hot Chili

Good diversification

The 3 months correlation between Copper and Hot is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Copper Fox Metals and Hot Chili Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hot Chili Limited and Copper Fox 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 Copper Fox Metals are associated (or correlated) with Hot Chili. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hot Chili Limited has no effect on the direction of Copper Fox i.e., Copper Fox and Hot Chili go up and down completely randomly.

Pair Corralation between Copper Fox and Hot Chili

Assuming the 90 days horizon Copper Fox Metals is expected to generate 2.08 times more return on investment than Hot Chili. However, Copper Fox is 2.08 times more volatile than Hot Chili Limited. It trades about 0.04 of its potential returns per unit of risk. Hot Chili Limited is currently generating about -0.02 per unit of risk. If you would invest  19.00  in Copper Fox Metals on September 5, 2024 and sell it today you would earn a total of  1.00  from holding Copper Fox Metals or generate 5.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Copper Fox Metals  vs.  Hot Chili Limited

Copper Fox Metals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Copper Fox Metals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Copper Fox reported solid returns over the last few months and may actually be approaching a breakup point.

Hot Chili Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hot Chili Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking signals, Hot Chili is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Copper Fox and Hot Chili

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

The idea behind Copper Fox Metals and Hot Chili 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.