Correlation Between Aston Minerals and Eramet SA

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

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

Diversification Opportunities for Aston Minerals and Eramet SA

-0.32

Correlation Coefficient

Aston Minerals  Eramet SA

Very good diversification

The 3 months correlation between Aston and Eramet is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Aston Minerals and Eramet SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eramet SA ADR and Aston Minerals 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 Aston Minerals are associated (or correlated) with Eramet SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eramet SA ADR has no effect on the direction of Aston Minerals i.e., Aston Minerals and Eramet SA go up and down completely randomly.

Pair Corralation between Aston Minerals and Eramet SA

Assuming the 90 days horizon Aston Minerals is expected to generate 3.47 times more return on investment than Eramet SA. However, Aston Minerals is 3.47 times more volatile than Eramet SA ADR. It trades about 0.09 of its potential returns per unit of risk. Eramet SA ADR is currently generating about -0.04 per unit of risk. If you would invest  0.50  in Aston Minerals on September 12, 2024 and sell it today you would earn a total of  0.25  from holding Aston Minerals or generate 50.0% return on investment over 90 days.

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

Aston Minerals  vs.  Eramet SA ADR

Aston Minerals

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aston Minerals are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Aston Minerals reported solid returns over the last few months and may actually be approaching a breakup point.

Eramet SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eramet SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Aston Minerals and Eramet SA

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

The idea behind Aston Minerals and Eramet SA ADR 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.