Correlation Between European Metals and Aurelia Metals

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

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

Diversification Opportunities for European Metals and Aurelia Metals

0.47

Correlation Coefficient

European Metals  Aurelia Metals

Very weak diversification

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

Pair Corralation between European Metals and Aurelia Metals

Assuming the 90 days horizon European Metals Holdings is expected to generate 0.98 times more return on investment than Aurelia Metals. However, European Metals Holdings is 1.02 times less risky than Aurelia Metals. It trades about -0.01 of its potential returns per unit of risk. Aurelia Metals Limited is currently generating about -0.1 per unit of risk. If you would invest  11.00  in European Metals Holdings on September 12, 2024 and sell it today you would lose (2.00) from holding European Metals Holdings or give up 18.18% of portfolio value over 90 days.

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

European Metals Holdings  vs.  Aurelia Metals Limited

European Metals Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Aurelia Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aurelia Metals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with European Metals and Aurelia Metals

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

The idea behind European Metals Holdings and Aurelia 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.