Correlation Between IDP Education and Falcon Metals

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

By analyzing existing cross correlation between IDP Education and Falcon Metals, you can compare the effects of market volatilities on IDP Education and Falcon Metals 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 IDP Education with a short position of Falcon Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of IDP Education and Falcon Metals.

Diversification Opportunities for IDP Education and Falcon Metals

0.85

Correlation Coefficient

IDP Education  Falcon Metals

Very poor diversification

The 3 months correlation between IDP and Falcon is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding IDP Education and Falcon Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falcon Metals and IDP Education 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 IDP Education are associated (or correlated) with Falcon Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falcon Metals has no effect on the direction of IDP Education i.e., IDP Education and Falcon Metals go up and down completely randomly.

Pair Corralation between IDP Education and Falcon Metals

Assuming the 90 days trading horizon IDP Education is expected to generate 0.46 times more return on investment than Falcon Metals. However, IDP Education is 2.19 times less risky than Falcon Metals. It trades about -0.2 of its potential returns per unit of risk. Falcon Metals is currently generating about -0.13 per unit of risk. If you would invest  1,598  in IDP Education on September 19, 2024 and sell it today you would lose (383.00) from holding IDP Education or give up 23.97% of portfolio value over 90 days.

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

IDP Education  vs.  Falcon Metals

IDP Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IDP Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's essential indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Falcon Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Falcon Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's essential indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with IDP Education and Falcon Metals

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

The idea behind IDP Education and Falcon Metals 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.