Correlation Between Fortescue and Emetals

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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

-0.31
  Correlation Coefficient

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 Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Fortescue  vs.  Emetals

 Performance 
       Timeline  
Fortescue 

Risk-Adjusted Performance

7 of 100

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

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
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.

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.
The idea behind Fortescue and Emetals 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 Stocks Directory module to find actively traded stocks across global markets.

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