Correlation Between Leeuwin Metals and EROAD

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

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

Diversification Opportunities for Leeuwin Metals and EROAD

0.7

Correlation Coefficient

Leeuwin Metals  EROAD

Poor diversification

The 3 months correlation between Leeuwin and EROAD is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Leeuwin Metals and EROAD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EROAD and Leeuwin Metals 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 Leeuwin Metals are associated (or correlated) with EROAD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EROAD has no effect on the direction of Leeuwin Metals i.e., Leeuwin Metals and EROAD go up and down completely randomly.

Pair Corralation between Leeuwin Metals and EROAD

Assuming the 90 days trading horizon Leeuwin Metals is expected to generate 0.69 times more return on investment than EROAD. However, Leeuwin Metals is 1.46 times less risky than EROAD. It trades about -0.06 of its potential returns per unit of risk. EROAD is currently generating about -0.11 per unit of risk. If you would invest  8.10  in Leeuwin Metals on September 2, 2024 and sell it today you would lose (0.80) from holding Leeuwin Metals or give up 9.88% of portfolio value over 90 days.

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

Leeuwin Metals  vs.  EROAD

Leeuwin Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leeuwin Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

EROAD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EROAD 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 fundamental 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 Leeuwin Metals and EROAD

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

The idea behind Leeuwin Metals and EROAD 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.