Correlation Between IGO and Eramet SA
Can any of the company-specific risk be diversified away by investing in both IGO and Eramet SA 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 IGO and Eramet SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between IGO Limited and Eramet SA ADR, you can compare the effects of market volatilities on IGO and Eramet SA 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 IGO with a short position of Eramet SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of IGO and Eramet SA.
Diversification Opportunities for IGO and Eramet SA
Weak diversification
The 3 months correlation between IGO and Eramet is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding IGO Limited and Eramet SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eramet SA ADR and IGO 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 IGO Limited are associated (or correlated) with Eramet SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eramet SA ADR has no effect on the direction of IGO i.e., IGO and Eramet SA go up and down completely randomly.
Pair Corralation between IGO and Eramet SA
Assuming the 90 days horizon IGO is expected to generate 1.16 times less return on investment than Eramet SA. But when comparing it to its historical volatility, IGO Limited is 1.13 times less risky than Eramet SA. It trades about 0.22 of its potential returns per unit of risk. Eramet SA ADR is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 535.00 in Eramet SA ADR on October 22, 2024 and sell it today you would earn a total of 48.00 from holding Eramet SA ADR or generate 8.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 94.74% |
| Values | Daily Returns |
IGO Limited vs. Eramet SA ADR
Performance |
| Timeline |
| IGO Limited |
| Eramet SA ADR |
IGO and Eramet SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IGO and Eramet SA
The main advantage of trading using opposite IGO and Eramet SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IGO position performs unexpectedly, Eramet SA 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 Eramet SA will offset losses from the drop in Eramet SA's long position.| IGO vs. Grid Metals Corp | IGO vs. First American Silver | IGO vs. Qubec Nickel Corp | IGO vs. Lithium Australia NL |
| Eramet SA vs. IGO Limited | Eramet SA vs. Nickel Mines Limited | Eramet SA vs. IGO Limited | Eramet SA vs. Edison Cobalt Corp |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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