Can any of the company-specific risk be diversified away by investing in both GREENX METALS and Ensign 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 GREENX METALS and Ensign into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GREENX METALS LTD and The Ensign Group, you can compare the effects of market volatilities on GREENX METALS and Ensign 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 GREENX METALS with a short position of Ensign. Check out your portfolio center. Please also check ongoing floating volatility patterns of GREENX METALS and Ensign.
Diversification Opportunities for GREENX METALS and Ensign
The 3 months correlation between GREENX and Ensign is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding GREENX METALS LTD and The Ensign Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ensign Group and GREENX 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 GREENX METALS LTD are associated (or correlated) with Ensign. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ensign Group has no effect on the direction of GREENX METALS i.e., GREENX METALS and Ensign go up and down completely randomly.
Assuming the 90 days trading horizon GREENX METALS LTD is expected to generate 3.28 times more return on investment than Ensign. However, GREENX METALS is 3.28 times more volatile than The Ensign Group. It trades about 0.08 of its potential returns per unit of risk. The Ensign Group is currently generating about -0.05 per unit of risk. If you would invest 55.00 in GREENX METALS LTD on June 23, 2023 and sell it today you would earn a total of 3.00 from holding GREENX METALS LTD or generate 5.45% return on investment over 90 days.
Over the last 90 days GREENX METALS LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in October 2023. The current disturbance may also be a sign of long-run up-swing for the company stockholders.
Compared to the overall equity markets, risk-adjusted returns on investments in The Ensign Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Ensign is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
The main advantage of trading using opposite GREENX METALS and Ensign positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GREENX METALS position performs unexpectedly, Ensign 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 Ensign will offset losses from the drop in Ensign's long position.
The idea behind GREENX METALS LTD and The Ensign Group 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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