Can any of the company-specific risk be diversified away by investing in both Electra Battery and American Battery 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 Electra Battery and American Battery into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Electra Battery Materials and American Battery Technology, you can compare the effects of market volatilities on Electra Battery and American Battery 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 Electra Battery with a short position of American Battery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Electra Battery and American Battery.
Diversification Opportunities for Electra Battery and American Battery
The 3 months correlation between Electra and American is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Electra Battery Materials and American Battery Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Battery Tec and Electra Battery 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 Electra Battery Materials are associated (or correlated) with American Battery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Battery Tec has no effect on the direction of Electra Battery i.e., Electra Battery and American Battery go up and down completely randomly.
Pair Corralation between Electra Battery and American Battery
Given the investment horizon of 90 days Electra Battery Materials is expected to generate 0.81 times more return on investment than American Battery. However, Electra Battery Materials is 1.24 times less risky than American Battery. It trades about 0.01 of its potential returns per unit of risk. American Battery Technology is currently generating about -0.13 per unit of risk. If you would invest 47.00 in Electra Battery Materials on March 6, 2024 and sell it today you would lose (0.10) from holding Electra Battery Materials or give up 0.21% of portfolio value over 90 days.
Over the last 90 days Electra Battery Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental drivers remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.
Over the last 90 days American Battery Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in July 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.