Correlation Between Stellar and Ferrum SA
Can any of the company-specific risk be diversified away by investing in both Stellar and Ferrum 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 Stellar and Ferrum SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stellar and Ferrum SA, you can compare the effects of market volatilities on Stellar and Ferrum 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 Stellar with a short position of Ferrum SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stellar and Ferrum SA.
Diversification Opportunities for Stellar and Ferrum SA
Pay attention - limited upside
The 3 months correlation between Stellar and Ferrum is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Stellar and Ferrum SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ferrum SA and Stellar 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 Stellar are associated (or correlated) with Ferrum SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ferrum SA has no effect on the direction of Stellar i.e., Stellar and Ferrum SA go up and down completely randomly.
Pair Corralation between Stellar and Ferrum SA
Assuming the 90 days trading horizon Stellar is expected to generate 3.51 times more return on investment than Ferrum SA. However, Stellar is 3.51 times more volatile than Ferrum SA. It trades about 0.09 of its potential returns per unit of risk. Ferrum SA is currently generating about 0.09 per unit of risk. If you would invest 40.00 in Stellar on October 24, 2024 and sell it today you would earn a total of 4.00 from holding Stellar or generate 10.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 90.48% |
| Values | Daily Returns |
Stellar vs. Ferrum SA
Performance |
| Timeline |
| Stellar |
| Ferrum SA |
Stellar and Ferrum SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stellar and Ferrum SA
The main advantage of trading using opposite Stellar and Ferrum SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stellar position performs unexpectedly, Ferrum 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 Ferrum SA will offset losses from the drop in Ferrum SA's long position.The idea behind Stellar and Ferrum SA 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.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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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