Correlation Between Black Mammoth and Encore Wire

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

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

Diversification Opportunities for Black Mammoth and Encore Wire

0.83

Correlation Coefficient

Black Mammoth  Encore Wire

Very poor diversification

The 3 months correlation between Black and Encore is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Black Mammoth Metals and Encore Wire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encore Wire and Black Mammoth 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 Black Mammoth Metals 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 Black Mammoth i.e., Black Mammoth and Encore Wire go up and down completely randomly.

Pair Corralation between Black Mammoth and Encore Wire

Assuming the 90 days horizon Black Mammoth Metals is expected to generate 2.12 times more return on investment than Encore Wire. However, Black Mammoth is 2.12 times more volatile than Encore Wire. It trades about 0.24 of its potential returns per unit of risk. Encore Wire is currently generating about 0.24 per unit of risk. If you would invest  31.00  in Black Mammoth Metals on January 25, 2024 and sell it today you would earn a total of  10.30  from holding Black Mammoth Metals or generate 33.23% return on investment over 90 days.

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

Black Mammoth Metals  vs.  Encore Wire

Black Mammoth Metals

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Black Mammoth Metals are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Black Mammoth reported solid returns over the last few months and may actually be approaching a breakup point.

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 Black Mammoth and Encore Wire

The main advantage of trading using opposite Black Mammoth and Encore Wire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Black Mammoth 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 Black Mammoth Metals 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.

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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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.