Correlation Between Arafura Resources and Canadian Palladium

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

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

Diversification Opportunities for Arafura Resources and Canadian Palladium

0.58

Correlation Coefficient

Arafura Resources  Canadian Palladium

Very weak diversification

The 3 months correlation between Arafura and Canadian is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Arafura Resources and Canadian Palladium Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Palladium and Arafura Resources 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 Arafura Resources are associated (or correlated) with Canadian Palladium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Palladium has no effect on the direction of Arafura Resources i.e., Arafura Resources and Canadian Palladium go up and down completely randomly.

Pair Corralation between Arafura Resources and Canadian Palladium

Assuming the 90 days horizon Arafura Resources is expected to under-perform the Canadian Palladium. But the pink sheet apears to be less risky and, when comparing its historical volatility, Arafura Resources is 1.73 times less risky than Canadian Palladium. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Canadian Palladium Resources is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  6.16  in Canadian Palladium Resources on September 14, 2024 and sell it today you would lose (1.37) from holding Canadian Palladium Resources or give up 22.24% of portfolio value over 90 days.

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

Arafura Resources  vs.  Canadian Palladium Resources

Arafura Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arafura Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Canadian Palladium

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Palladium Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Canadian Palladium reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arafura Resources and Canadian Palladium

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

The idea behind Arafura Resources and Canadian Palladium Resources 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.