Correlation Between Glencore PLC and Encore Wire

Can any of the company-specific risk be diversified away by investing in both Glencore PLC and Encore Wire 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 Glencore PLC and Encore Wire into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Glencore PLC ADR and Encore Wire, you can compare the effects of market volatilities on Glencore PLC and Encore Wire 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 Glencore PLC with a short position of Encore Wire. Check out your portfolio center. Please also check ongoing floating volatility patterns of Glencore PLC and Encore Wire.

Diversification Opportunities for Glencore PLC and Encore Wire

0.76

Correlation Coefficient

Glencore PLC  Encore Wire

Poor diversification

The 3 months correlation between Glencore and Encore is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Glencore PLC ADR and Encore Wire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encore Wire and Glencore PLC 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 Glencore PLC ADR are associated (or correlated) with Encore Wire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encore Wire has no effect on the direction of Glencore PLC i.e., Glencore PLC and Encore Wire go up and down completely randomly.

Pair Corralation between Glencore PLC and Encore Wire

Assuming the 90 days horizon Glencore PLC is expected to generate 2.71 times less return on investment than Encore Wire. But when comparing it to its historical volatility, Glencore PLC ADR is 1.17 times less risky than Encore Wire. It trades about 0.04 of its potential returns per unit of risk. Encore Wire is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  9,739  in Encore Wire on January 25, 2024 and sell it today you would earn a total of  18,502  from holding Encore Wire or generate 189.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Glencore PLC ADR  vs.  Encore Wire

Glencore PLC ADR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Glencore PLC ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental indicators, Glencore PLC may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Encore Wire

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Encore Wire are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Encore Wire exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Glencore PLC and Encore Wire

The main advantage of trading using opposite Glencore PLC and Encore Wire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Glencore PLC position performs unexpectedly, Encore Wire 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 Encore Wire will offset losses from the drop in Encore Wire's long position.

The idea behind Glencore PLC ADR and Encore Wire 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.