Correlation Between Central Asia and European Metals
Can any of the company-specific risk be diversified away by investing in both Central Asia and European 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 Central Asia and European Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Central Asia Metals and European Metals Holdings, you can compare the effects of market volatilities on Central Asia and European 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 Central Asia with a short position of European Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Asia and European Metals.
Diversification Opportunities for Central Asia and European Metals
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Central and European is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Central Asia Metals and European Metals Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Metals Holdings and Central Asia 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 Central Asia Metals are associated (or correlated) with European Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Metals Holdings has no effect on the direction of Central Asia i.e., Central Asia and European Metals go up and down completely randomly.
Pair Corralation between Central Asia and European Metals
Assuming the 90 days trading horizon Central Asia Metals is expected to generate 0.54 times more return on investment than European Metals. However, Central Asia Metals is 1.85 times less risky than European Metals. It trades about -0.1 of its potential returns per unit of risk. European Metals Holdings is currently generating about -0.19 per unit of risk. If you would invest 20,967 in Central Asia Metals on August 31, 2024 and sell it today you would lose (4,727) from holding Central Asia Metals or give up 22.54% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Central Asia Metals vs. European Metals Holdings
Performance |
| Timeline |
| Central Asia Metals |
| European Metals Holdings |
Central Asia and European Metals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Central Asia and European Metals
The main advantage of trading using opposite Central Asia and European Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Central Asia position performs unexpectedly, European 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 European Metals will offset losses from the drop in European Metals' long position.The idea behind Central Asia Metals and European Metals Holdings 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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