Correlation Between Defense Metals and European Residential

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

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

Diversification Opportunities for Defense Metals and European Residential

0.47

Correlation Coefficient

Defense Metals  European Residential

Very weak diversification

The 3 months correlation between Defense and European is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Defense Metals Corp and European Residential Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Residential Real and Defense 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 Defense Metals Corp are associated (or correlated) with European Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Residential Real has no effect on the direction of Defense Metals i.e., Defense Metals and European Residential go up and down completely randomly.

Pair Corralation between Defense Metals and European Residential

Assuming the 90 days trading horizon Defense Metals Corp is expected to under-perform the European Residential. In addition to that, Defense Metals is 3.08 times more volatile than European Residential Real. It trades about 0.0 of its total potential returns per unit of risk. European Residential Real is currently generating about 0.03 per unit of volatility. If you would invest  323.00  in European Residential Real on September 27, 2024 and sell it today you would earn a total of  61.00  from holding European Residential Real or generate 18.89% return on investment over 90 days.

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

Defense Metals Corp  vs.  European Residential Real

Defense Metals Corp

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Defense Metals Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Defense Metals showed solid returns over the last few months and may actually be approaching a breakup point.

European Residential Real

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in European Residential Real are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, European Residential sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Defense Metals and European Residential

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

The idea behind Defense Metals Corp and European Residential Real 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.