Correlation Between Hot Chili and World Copper

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

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

Diversification Opportunities for Hot Chili and World Copper

-0.08

Correlation Coefficient

Hot Chili  World Copper

Good diversification

The 3 months correlation between Hot and World is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Hot Chili Limited and World Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Copper and Hot Chili 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 Hot Chili Limited are associated (or correlated) with World Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Copper has no effect on the direction of Hot Chili i.e., Hot Chili and World Copper go up and down completely randomly.

Pair Corralation between Hot Chili and World Copper

Assuming the 90 days horizon Hot Chili Limited is expected to under-perform the World Copper. But the otc stock apears to be less risky and, when comparing its historical volatility, Hot Chili Limited is 2.2 times less risky than World Copper. The otc stock trades about -0.02 of its potential returns per unit of risk. The World Copper is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4.80  in World Copper on September 5, 2024 and sell it today you would earn a total of  0.57  from holding World Copper or generate 11.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Hot Chili Limited  vs.  World Copper

Hot Chili Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hot Chili Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking signals, Hot Chili is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

World Copper

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in World Copper are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, World Copper reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hot Chili and World Copper

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

The idea behind Hot Chili Limited and World Copper 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.