Correlation Between IGO and Grid Metals

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

By analyzing existing cross correlation between IGO Limited and Grid Metals Corp, you can compare the effects of market volatilities on IGO and Grid Metals 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 IGO with a short position of Grid Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of IGO and Grid Metals.

Diversification Opportunities for IGO and Grid Metals

-0.03

Correlation Coefficient

IGO  Grid Metals

Good diversification

The 3 months correlation between IGO and Grid is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding IGO Limited and Grid Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grid Metals Corp and IGO 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 IGO Limited are associated (or correlated) with Grid Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grid Metals Corp has no effect on the direction of IGO i.e., IGO and Grid Metals go up and down completely randomly.

Pair Corralation between IGO and Grid Metals

Assuming the 90 days horizon IGO is expected to generate 4.69 times less return on investment than Grid Metals. But when comparing it to its historical volatility, IGO Limited is 2.84 times less risky than Grid Metals. It trades about 0.17 of its potential returns per unit of risk. Grid Metals Corp is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  4.80  in Grid Metals Corp on February 26, 2024 and sell it today you would earn a total of  1.07  from holding Grid Metals Corp or generate 22.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

IGO Limited  vs.  Grid Metals Corp

IGO Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in IGO Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, IGO may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Grid Metals Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Grid Metals Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Grid Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IGO and Grid Metals

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

The idea behind IGO Limited and Grid Metals Corp 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.