Correlation Between IGO and Adriatic Metals

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

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

Diversification Opportunities for IGO and Adriatic Metals

0.66

Correlation Coefficient

IGO  Adriatic Metals

Poor diversification

The 3 months correlation between IGO and Adriatic is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding IGO Limited and Adriatic Metals PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adriatic Metals PLC and IGO 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 IGO Limited are associated (or correlated) with Adriatic Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adriatic Metals PLC has no effect on the direction of IGO i.e., IGO and Adriatic Metals go up and down completely randomly.

Pair Corralation between IGO and Adriatic Metals

Assuming the 90 days horizon IGO is expected to generate 6.55 times less return on investment than Adriatic Metals. But when comparing it to its historical volatility, IGO Limited is 1.58 times less risky than Adriatic Metals. It trades about 0.03 of its potential returns per unit of risk. Adriatic Metals PLC is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  200.00  in Adriatic Metals PLC on September 2, 2024 and sell it today you would earn a total of  63.00  from holding Adriatic Metals PLC or generate 31.5% return on investment over 90 days.

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

IGO Limited  vs.  Adriatic Metals PLC

IGO Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in IGO Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, IGO is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Adriatic Metals PLC

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Adriatic Metals PLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain essential indicators, Adriatic Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IGO and Adriatic Metals

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

The idea behind IGO Limited and Adriatic Metals PLC 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.