Correlation Between Europa Metals and Kap Industrial

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

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

Diversification Opportunities for Europa Metals and Kap Industrial

0.3

Correlation Coefficient

Europa Metals  Kap Industrial

Weak diversification

The 3 months correlation between Europa and Kap is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Europa Metals and Kap Industrial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kap Industrial Holdings 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 Kap Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kap Industrial Holdings has no effect on the direction of Europa Metals i.e., Europa Metals and Kap Industrial go up and down completely randomly.

Pair Corralation between Europa Metals and Kap Industrial

Assuming the 90 days trading horizon Europa Metals is expected to generate 3.82 times more return on investment than Kap Industrial. However, Europa Metals is 3.82 times more volatile than Kap Industrial Holdings. It trades about 0.04 of its potential returns per unit of risk. Kap Industrial Holdings is currently generating about 0.05 per unit of risk. If you would invest  7,000  in Europa Metals on September 14, 2024 and sell it today you would lose (1,600) from holding Europa Metals or give up 22.86% of portfolio value over 90 days.

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

Europa Metals  vs.  Kap Industrial Holdings

Europa Metals

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Europa Metals are ranked lower than 5 (%) 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.

Kap Industrial Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kap Industrial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Kap Industrial is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Europa Metals and Kap Industrial

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

The idea behind Europa Metals and Kap Industrial Holdings 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.