Correlation Between European Metals and Virgin Wines
Can any of the company-specific risk be diversified away by investing in both European Metals and Virgin Wines 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 Virgin Wines 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 Virgin Wines UK, you can compare the effects of market volatilities on European Metals and Virgin Wines 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 Virgin Wines. Check out your portfolio center. Please also check ongoing floating volatility patterns of European Metals and Virgin Wines.
Diversification Opportunities for European Metals and Virgin Wines
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between European and Virgin is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding European Metals Holdings and Virgin Wines UK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virgin Wines UK 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 Virgin Wines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virgin Wines UK has no effect on the direction of European Metals i.e., European Metals and Virgin Wines go up and down completely randomly.
Pair Corralation between European Metals and Virgin Wines
Assuming the 90 days trading horizon European Metals Holdings is expected to generate 1.9 times more return on investment than Virgin Wines. However, European Metals is 1.9 times more volatile than Virgin Wines UK. It trades about 0.05 of its potential returns per unit of risk. Virgin Wines UK is currently generating about -0.18 per unit of risk. If you would invest 725.00 in European Metals Holdings on November 5, 2024 and sell it today you would earn a total of 20.00 from holding European Metals Holdings or generate 2.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
European Metals Holdings vs. Virgin Wines UK
Performance |
| Timeline |
| European Metals Holdings |
| Virgin Wines UK |
European Metals and Virgin Wines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with European Metals and Virgin Wines
The main advantage of trading using opposite European Metals and Virgin Wines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if European Metals position performs unexpectedly, Virgin Wines 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 Virgin Wines will offset losses from the drop in Virgin Wines' long position.| European Metals vs. Givaudan SA | European Metals vs. Antofagasta PLC | European Metals vs. Ferrexpo PLC | European Metals vs. Atalaya Mining |
| Virgin Wines vs. Empire Metals Limited | Virgin Wines vs. PureTech Health plc | Virgin Wines vs. HCA Healthcare | Virgin Wines vs. URU Metals |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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