Correlation Between East Africa and MOSAIC

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Can any of the company-specific risk be diversified away by investing in both East Africa and MOSAIC 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 East Africa and MOSAIC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between East Africa Metals and MOSAIC NEW 405, you can compare the effects of market volatilities on East Africa and MOSAIC 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 East Africa with a short position of MOSAIC. Check out your portfolio center. Please also check ongoing floating volatility patterns of East Africa and MOSAIC.

Diversification Opportunities for East Africa and MOSAIC

0.62
  Correlation Coefficient

Poor diversification

The 3 months correlation between East and MOSAIC is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding East Africa Metals and MOSAIC NEW 405 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MOSAIC NEW 405 and East Africa 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 East Africa Metals are associated (or correlated) with MOSAIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MOSAIC NEW 405 has no effect on the direction of East Africa i.e., East Africa and MOSAIC go up and down completely randomly.

Pair Corralation between East Africa and MOSAIC

Assuming the 90 days horizon East Africa Metals is expected to generate 37.99 times more return on investment than MOSAIC. However, East Africa is 37.99 times more volatile than MOSAIC NEW 405. It trades about 0.06 of its potential returns per unit of risk. MOSAIC NEW 405 is currently generating about 0.01 per unit of risk. If you would invest  5.20  in East Africa Metals on September 14, 2024 and sell it today you would earn a total of  5.80  from holding East Africa Metals or generate 111.54% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy97.99%
ValuesDaily Returns

East Africa Metals  vs.  MOSAIC NEW 405

 Performance 
       Timeline  
East Africa Metals 

Risk-Adjusted Performance

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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.
MOSAIC NEW 405 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days MOSAIC NEW 405 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, MOSAIC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

East Africa and MOSAIC Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with East Africa and MOSAIC

The main advantage of trading using opposite East Africa and MOSAIC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East Africa position performs unexpectedly, MOSAIC 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 MOSAIC will offset losses from the drop in MOSAIC's long position.
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The idea behind East Africa Metals and MOSAIC NEW 405 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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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.

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