Correlation Between International Consolidated and Sovereign Metals
Can any of the company-specific risk be diversified away by investing in both International Consolidated and Sovereign 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 International Consolidated and Sovereign Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Consolidated Airlines and Sovereign Metals Limited, you can compare the effects of market volatilities on International Consolidated and Sovereign 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 International Consolidated with a short position of Sovereign Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Consolidated and Sovereign Metals.
Diversification Opportunities for International Consolidated and Sovereign Metals
-0.23 | Correlation Coefficient |
Very good diversification
The 3 months correlation between International and Sovereign is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding International Consolidated Air and Sovereign Metals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sovereign Metals and International Consolidated 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 International Consolidated Airlines are associated (or correlated) with Sovereign Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sovereign Metals has no effect on the direction of International Consolidated i.e., International Consolidated and Sovereign Metals go up and down completely randomly.
Pair Corralation between International Consolidated and Sovereign Metals
Assuming the 90 days horizon International Consolidated Airlines is expected to generate 0.65 times more return on investment than Sovereign Metals. However, International Consolidated Airlines is 1.55 times less risky than Sovereign Metals. It trades about 0.34 of its potential returns per unit of risk. Sovereign Metals Limited is currently generating about 0.05 per unit of risk. If you would invest 356.00 in International Consolidated Airlines on November 6, 2024 and sell it today you would earn a total of 51.00 from holding International Consolidated Airlines or generate 14.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Consolidated Air vs. Sovereign Metals Limited
Performance |
| Timeline |
| International Consolidated |
| Sovereign Metals |
International Consolidated and Sovereign Metals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Consolidated and Sovereign Metals
The main advantage of trading using opposite International Consolidated and Sovereign Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Consolidated position performs unexpectedly, Sovereign 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 Sovereign Metals will offset losses from the drop in Sovereign Metals' long position.The idea behind International Consolidated Airlines and Sovereign Metals Limited 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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