Correlation Between Fortescue and Emetals
Can any of the company-specific risk be diversified away by investing in both Fortescue and Emetals 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 Fortescue and Emetals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fortescue and Emetals, you can compare the effects of market volatilities on Fortescue and Emetals 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 Fortescue with a short position of Emetals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortescue and Emetals.
Diversification Opportunities for Fortescue and Emetals
Very good diversification
The 3 months correlation between Fortescue and Emetals is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue and Emetals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emetals and Fortescue 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 Fortescue are associated (or correlated) with Emetals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emetals has no effect on the direction of Fortescue i.e., Fortescue and Emetals go up and down completely randomly.
Pair Corralation between Fortescue and Emetals
Assuming the 90 days trading horizon Fortescue is expected to generate 2.0 times less return on investment than Emetals. But when comparing it to its historical volatility, Fortescue is 1.97 times less risky than Emetals. It trades about 0.1 of its potential returns per unit of risk. Emetals is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 0.40 in Emetals on September 16, 2024 and sell it today you would earn a total of 0.10 from holding Emetals or generate 25.0% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Fortescue vs. Emetals
Performance |
Timeline |
Fortescue |
Emetals |
Fortescue and Emetals Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Fortescue and Emetals
The main advantage of trading using opposite Fortescue and Emetals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortescue position performs unexpectedly, Emetals 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 Emetals will offset losses from the drop in Emetals' long position.Fortescue vs. Emetals | Fortescue vs. Dalaroo Metals | Fortescue vs. Retail Food Group | Fortescue vs. Super Retail Group |
Emetals vs. Northern Star Resources | Emetals vs. Evolution Mining | Emetals vs. Bluescope Steel | Emetals vs. Sandfire Resources NL |
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 Stocks Directory module to find actively traded stocks across global markets.
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