Correlation Between Metals X and Centaurus Metals

Can any of the company-specific risk be diversified away by investing in both Metals X and Centaurus 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 Metals X and Centaurus Metals 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 Centaurus Metals Limited, you can compare the effects of market volatilities on Metals X and Centaurus 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 Metals X with a short position of Centaurus Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metals X and Centaurus Metals.

Diversification Opportunities for Metals X and Centaurus Metals

0.77

Correlation Coefficient

Metals X  Centaurus Metals

Poor diversification

The 3 months correlation between Metals and Centaurus is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Metals X Limited and Centaurus Metals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centaurus Metals 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 Centaurus Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centaurus Metals has no effect on the direction of Metals X i.e., Metals X and Centaurus Metals go up and down completely randomly.

Pair Corralation between Metals X and Centaurus Metals

Assuming the 90 days horizon Metals X Limited is expected to generate 1.19 times more return on investment than Centaurus Metals. However, Metals X is 1.19 times more volatile than Centaurus Metals Limited. It trades about -0.05 of its potential returns per unit of risk. Centaurus Metals Limited is currently generating about -0.07 per unit of risk. If you would invest  34.00  in Metals X Limited on October 1, 2024 and sell it today you would lose (9.00) from holding Metals X Limited or give up 26.47% 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.  Centaurus Metals Limited

Metals X Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metals X Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Centaurus Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Centaurus Metals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Metals X and Centaurus Metals

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

The idea behind Metals X Limited and Centaurus Metals Limited 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.