Correlation Between Mach Natural and East Africa

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

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

Diversification Opportunities for Mach Natural and East Africa

0.3

Correlation Coefficient

Mach Natural  East Africa

Weak diversification

The 3 months correlation between Mach and East is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Mach Natural Resources and East Africa Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East Africa Metals and Mach Natural 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 Mach Natural Resources are associated (or correlated) with East Africa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East Africa Metals has no effect on the direction of Mach Natural i.e., Mach Natural and East Africa go up and down completely randomly.

Pair Corralation between Mach Natural and East Africa

Considering the 90-day investment horizon Mach Natural Resources is expected to generate 0.51 times more return on investment than East Africa. However, Mach Natural Resources is 1.97 times less risky than East Africa. It trades about -0.04 of its potential returns per unit of risk. East Africa Metals is currently generating about -0.16 per unit of risk. If you would invest  1,595  in Mach Natural Resources on September 14, 2024 and sell it today you would lose (69.00) from holding Mach Natural Resources or give up 4.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Mach Natural Resources  vs.  East Africa Metals

Mach Natural Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mach Natural Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Mach Natural is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

East Africa Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days East Africa Metals 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 primary 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 Mach Natural and East Africa

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

The idea behind Mach Natural Resources and East Africa Metals 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.