Correlation Between Cornish Metals and Adriatic Metals

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

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

Diversification Opportunities for Cornish Metals and Adriatic Metals

0.75

Correlation Coefficient

Cornish Metals  Adriatic Metals

Poor diversification

The 3 months correlation between Cornish and Adriatic is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Cornish Metals and Adriatic Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adriatic Metals and Cornish 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 Cornish Metals are associated (or correlated) with Adriatic Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adriatic Metals has no effect on the direction of Cornish Metals i.e., Cornish Metals and Adriatic Metals go up and down completely randomly.

Pair Corralation between Cornish Metals and Adriatic Metals

Assuming the 90 days trading horizon Cornish Metals is expected to generate 1.65 times less return on investment than Adriatic Metals. In addition to that, Cornish Metals is 1.13 times more volatile than Adriatic Metals. It trades about 0.11 of its total potential returns per unit of risk. Adriatic Metals is currently generating about 0.21 per unit of volatility. If you would invest  14,320  in Adriatic Metals on September 3, 2024 and sell it today you would earn a total of  6,830  from holding Adriatic Metals or generate 47.7% return on investment over 90 days.

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

Cornish Metals  vs.  Adriatic Metals

Cornish Metals

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cornish Metals are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Cornish Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Adriatic Metals

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Adriatic Metals are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Adriatic Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cornish Metals and Adriatic Metals

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

The idea behind Cornish Metals and Adriatic 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.