Correlation Between Europa Metals and HomeChoice Investments

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

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

Diversification Opportunities for Europa Metals and HomeChoice Investments

0.58

Correlation Coefficient

Europa Metals  HomeChoice Investments

Very weak diversification

The 3 months correlation between Europa and HomeChoice is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Europa Metals and HomeChoice Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HomeChoice Investments 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 HomeChoice Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HomeChoice Investments has no effect on the direction of Europa Metals i.e., Europa Metals and HomeChoice Investments go up and down completely randomly.

Pair Corralation between Europa Metals and HomeChoice Investments

Assuming the 90 days trading horizon Europa Metals is expected to generate 4.06 times more return on investment than HomeChoice Investments. However, Europa Metals is 4.06 times more volatile than HomeChoice Investments. It trades about 0.03 of its potential returns per unit of risk. HomeChoice Investments is currently generating about -0.2 per unit of risk. If you would invest  6,500  in Europa Metals on September 5, 2024 and sell it today you would lose (1,500) from holding Europa Metals or give up 23.08% of portfolio value over 90 days.

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

Europa Metals  vs.  HomeChoice Investments

Europa Metals

Risk-Adjusted Performance

4 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Europa Metals are ranked lower than 4 (%) 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.

HomeChoice Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HomeChoice Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Europa Metals and HomeChoice Investments

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

The idea behind Europa Metals and HomeChoice Investments 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.