Correlation Between Metals X and Search Minerals

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

Diversification Opportunities for Metals X and Search Minerals

0.42

Correlation Coefficient

Metals X  Search Minerals

Very weak diversification

The 3 months correlation between Metals and Search is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Metals X Limited and Search Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Search Minerals 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 Search Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Search Minerals has no effect on the direction of Metals X i.e., Metals X and Search Minerals go up and down completely randomly.

Pair Corralation between Metals X and Search Minerals

Assuming the 90 days horizon Metals X is expected to generate 80.13 times less return on investment than Search Minerals. But when comparing it to its historical volatility, Metals X Limited is 10.8 times less risky than Search Minerals. It trades about 0.01 of its potential returns per unit of risk. Search Minerals is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3.08  in Search Minerals on September 13, 2024 and sell it today you would lose (1.88) from holding Search Minerals or give up 61.04% of portfolio value over 90 days.

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

Metals X Limited  vs.  Search Minerals

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.

Search Minerals

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Search Minerals are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal primary indicators, Search Minerals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metals X and Search Minerals

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

The idea behind Metals X Limited and Search Minerals 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.