Correlation Between European Metals and Baker Steel
Can any of the company-specific risk be diversified away by investing in both European Metals and Baker Steel 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 European Metals and Baker Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between European Metals Holdings and Baker Steel Resources, you can compare the effects of market volatilities on European Metals and Baker Steel 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 European Metals with a short position of Baker Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of European Metals and Baker Steel.
Diversification Opportunities for European Metals and Baker Steel
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between European and Baker is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding European Metals Holdings and Baker Steel Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baker Steel Resources and European Metals 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 European Metals Holdings are associated (or correlated) with Baker Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baker Steel Resources has no effect on the direction of European Metals i.e., European Metals and Baker Steel go up and down completely randomly.
Pair Corralation between European Metals and Baker Steel
Assuming the 90 days trading horizon European Metals Holdings is expected to under-perform the Baker Steel. In addition to that, European Metals is 1.65 times more volatile than Baker Steel Resources. It trades about -0.1 of its total potential returns per unit of risk. Baker Steel Resources is currently generating about -0.15 per unit of volatility. If you would invest 5,650 in Baker Steel Resources on December 8, 2024 and sell it today you would lose (490.00) from holding Baker Steel Resources or give up 8.67% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
European Metals Holdings vs. Baker Steel Resources
Performance |
| Timeline |
| European Metals Holdings |
| Baker Steel Resources |
European Metals and Baker Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with European Metals and Baker Steel
The main advantage of trading using opposite European Metals and Baker Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if European Metals position performs unexpectedly, Baker Steel 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 Baker Steel will offset losses from the drop in Baker Steel's long position.| European Metals vs. Norwegian Air Shuttle | ||
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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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