Correlation Between Metals X and Commerce Resources

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

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

Diversification Opportunities for Metals X and Commerce Resources

0.6

Correlation Coefficient

Metals X  Commerce Resources

Poor diversification

The 3 months correlation between Metals and Commerce is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Metals X Limited and Commerce Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commerce Resources Corp and Metals X 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 Metals X Limited are associated (or correlated) with Commerce Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commerce Resources Corp has no effect on the direction of Metals X i.e., Metals X and Commerce Resources go up and down completely randomly.

Pair Corralation between Metals X and Commerce Resources

Assuming the 90 days horizon Metals X is expected to generate 1.08 times less return on investment than Commerce Resources. But when comparing it to its historical volatility, Metals X Limited is 1.84 times less risky than Commerce Resources. It trades about 0.01 of its potential returns per unit of risk. Commerce Resources Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  8.00  in Commerce Resources Corp on September 13, 2024 and sell it today you would lose (2.58) from holding Commerce Resources Corp or give up 32.25% of portfolio value over 90 days.

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

Metals X Limited  vs.  Commerce Resources Corp

Metals X Limited

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Metals X Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Metals X is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Commerce Resources Corp

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Metals X and Commerce Resources

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

The idea behind Metals X Limited and Commerce Resources Corp 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.