Correlation Between Emetals and OD6 Metals

Can any of the company-specific risk be diversified away by investing in both Emetals and OD6 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 Emetals and OD6 Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Emetals and OD6 Metals, you can compare the effects of market volatilities on Emetals and OD6 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 Emetals with a short position of OD6 Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emetals and OD6 Metals.

Diversification Opportunities for Emetals and OD6 Metals

0.04

Correlation Coefficient

Emetals  OD6 Metals

Significant diversification

The 3 months correlation between Emetals and OD6 is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Emetals and OD6 Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OD6 Metals and Emetals 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 Emetals are associated (or correlated) with OD6 Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OD6 Metals has no effect on the direction of Emetals i.e., Emetals and OD6 Metals go up and down completely randomly.

Pair Corralation between Emetals and OD6 Metals

Assuming the 90 days trading horizon Emetals is expected to generate 0.78 times more return on investment than OD6 Metals. However, Emetals is 1.28 times less risky than OD6 Metals. It trades about 0.01 of its potential returns per unit of risk. OD6 Metals is currently generating about -0.02 per unit of risk. If you would invest  1.00  in Emetals on September 24, 2024 and sell it today you would lose (0.50) from holding Emetals or give up 50.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.62%
Values	Daily Returns

Emetals  vs.  OD6 Metals

Emetals

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Emetals are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Emetals unveiled solid returns over the last few months and may actually be approaching a breakup point.

OD6 Metals

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in OD6 Metals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, OD6 Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Emetals and OD6 Metals

The main advantage of trading using opposite Emetals and OD6 Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emetals position performs unexpectedly, OD6 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 OD6 Metals will offset losses from the drop in OD6 Metals' long position.

The idea behind Emetals and OD6 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.