Can any of the company-specific risk be diversified away by investing in both Eastfield Resources and Anglo American 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 Eastfield Resources and Anglo American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eastfield Resources and Anglo American Platinum, you can compare the effects of market volatilities on Eastfield Resources and Anglo American 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 Eastfield Resources with a short position of Anglo American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastfield Resources and Anglo American.
Diversification Opportunities for Eastfield Resources and Anglo American
The 3 months correlation between Eastfield and Anglo is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Eastfield Resources and Anglo American Platinum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anglo American Platinum and Eastfield Resources 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 Eastfield Resources are associated (or correlated) with Anglo American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anglo American Platinum has no effect on the direction of Eastfield Resources i.e., Eastfield Resources and Anglo American go up and down completely randomly.
Pair Corralation between Eastfield Resources and Anglo American
Assuming the 90 days horizon Eastfield Resources is expected to generate 3.22 times more return on investment than Anglo American. However, Eastfield Resources is 3.22 times more volatile than Anglo American Platinum. It trades about 0.03 of its potential returns per unit of risk. Anglo American Platinum is currently generating about -0.03 per unit of risk. If you would invest 6.70 in Eastfield Resources on September 5, 2023 and sell it today you would lose (4.80) from holding Eastfield Resources or give up 71.64% of portfolio value over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Eastfield Resources are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Eastfield Resources reported solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in Anglo American Platinum are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Anglo American showed solid returns over the last few months and may actually be approaching a breakup point.
Eastfield Resources and Anglo American Volatility Contrast
Predicted Return Density
Pair Trading with Eastfield Resources and Anglo American
The main advantage of trading using opposite Eastfield Resources and Anglo American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eastfield Resources position performs unexpectedly, Anglo American 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 Anglo American will offset losses from the drop in Anglo American's long position.
The idea behind Eastfield Resources and Anglo American Platinum 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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