Correlation Between Cleveland Cliffs and BRASIL ON

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Can any of the company-specific risk be diversified away by investing in both Cleveland Cliffs and BRASIL ON 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 Cleveland Cliffs and BRASIL ON into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cleveland-Cliffs and BRASIL ON NM, you can compare the effects of market volatilities on Cleveland Cliffs and BRASIL ON 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 Cleveland Cliffs with a short position of BRASIL ON. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cleveland Cliffs and BRASIL ON.

Diversification Opportunities for Cleveland Cliffs and BRASIL ON

0.46
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Cleveland and BRASIL is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Cleveland-Cliffs and BRASIL ON NM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRASIL ON NM and Cleveland Cliffs 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 Cleveland-Cliffs are associated (or correlated) with BRASIL ON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRASIL ON NM has no effect on the direction of Cleveland Cliffs i.e., Cleveland Cliffs and BRASIL ON go up and down completely randomly.

Pair Corralation between Cleveland Cliffs and BRASIL ON

Considering the 90-day investment horizon Cleveland Cliffs is expected to generate 2.06 times less return on investment than BRASIL ON. In addition to that, Cleveland Cliffs is 2.08 times more volatile than BRASIL ON NM. It trades about 0.09 of its total potential returns per unit of risk. BRASIL ON NM is currently generating about 0.39 per unit of volatility. If you would invest  3,352  in BRASIL ON NM on May 15, 2022 and sell it today you would earn a total of  1,058  from holding BRASIL ON NM or generate 31.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy97.73%
ValuesDaily Returns

Cleveland-Cliffs  vs.  BRASIL ON NM

 Performance (%) 
       Timeline  
Cleveland-Cliffs 
Cleveland Performance
0 of 100
Over the last 90 days Cleveland-Cliffs has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Cleveland Cliffs is not utilizing all of its potentials. The new stock price tumult, may contribute to shorter-term losses for the shareholders.

Cleveland Price Channel

BRASIL ON NM 
BRASIL Performance
17 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in BRASIL ON NM are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, BRASIL ON reported solid returns over the last few months and may actually be approaching a breakup point.

BRASIL Price Channel

Cleveland Cliffs and BRASIL ON Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Cleveland Cliffs and BRASIL ON

The main advantage of trading using opposite Cleveland Cliffs and BRASIL ON positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cleveland Cliffs position performs unexpectedly, BRASIL ON 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 BRASIL ON will offset losses from the drop in BRASIL ON's long position.
The idea behind Cleveland-Cliffs and BRASIL ON NM 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.

BRASIL ON NM

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The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against BRASIL ON as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. BRASIL ON's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, BRASIL ON's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to BRASIL ON NM.
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 Commodity Channel Index module to use Commodity Channel Index to analyze current equity momentum.

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