Correlation Between Eramet SA and Nexity

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

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

Diversification Opportunities for Eramet SA and Nexity

-0.15

Correlation Coefficient

Eramet SA  Nexity

Good diversification

The 3 months correlation between Eramet and Nexity is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Eramet SA and Nexity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nexity and Eramet SA 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 Eramet SA are associated (or correlated) with Nexity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nexity has no effect on the direction of Eramet SA i.e., Eramet SA and Nexity go up and down completely randomly.

Pair Corralation between Eramet SA and Nexity

Assuming the 90 days trading horizon Eramet SA is expected to under-perform the Nexity. In addition to that, Eramet SA is 1.35 times more volatile than Nexity. It trades about -0.04 of its total potential returns per unit of risk. Nexity is currently generating about 0.1 per unit of volatility. If you would invest  1,069  in Nexity on September 11, 2024 and sell it today you would earn a total of  167.00  from holding Nexity or generate 15.62% return on investment over 90 days.

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

Eramet SA  vs.  Nexity

Eramet SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eramet SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Nexity

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nexity are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, Nexity sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eramet SA and Nexity

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

The idea behind Eramet SA and Nexity 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.