Correlation Between Europa Metals and GSETNC

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

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

Diversification Opportunities for Europa Metals and GSETNC

-0.25

Correlation Coefficient

Europa Metals  GSETNC

Very good diversification

The 3 months correlation between Europa and GSETNC is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Europa Metals and GSETNC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GSETNC and Europa 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 Europa Metals are associated (or correlated) with GSETNC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GSETNC has no effect on the direction of Europa Metals i.e., Europa Metals and GSETNC go up and down completely randomly.

Pair Corralation between Europa Metals and GSETNC

Assuming the 90 days trading horizon Europa Metals is expected to generate 1.34 times less return on investment than GSETNC. In addition to that, Europa Metals is 3.76 times more volatile than GSETNC. It trades about 0.04 of its total potential returns per unit of risk. GSETNC is currently generating about 0.21 per unit of volatility. If you would invest  301,100  in GSETNC on September 1, 2024 and sell it today you would earn a total of  65,500  from holding GSETNC or generate 21.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	50.0%
Values	Daily Returns

Europa Metals  vs.  GSETNC

Europa Metals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Europa Metals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Europa Metals exhibited solid returns over the last few months and may actually be approaching a breakup point.

GSETNC

Risk-Adjusted Performance

16 of 100

Solid

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

Pair Trading with Europa Metals and GSETNC

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

The idea behind Europa Metals and GSETNC 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.

Check out your portfolio center.

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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.