Correlation Between Arafura Resources and Glencore PLC

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

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

Diversification Opportunities for Arafura Resources and Glencore PLC

0.64

Correlation Coefficient

Arafura Resources  Glencore PLC

Poor diversification

The 3 months correlation between Arafura and Glencore is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Arafura Resources and Glencore PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Glencore PLC 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 Glencore PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Glencore PLC has no effect on the direction of Arafura Resources i.e., Arafura Resources and Glencore PLC go up and down completely randomly.

Pair Corralation between Arafura Resources and Glencore PLC

Assuming the 90 days horizon Arafura Resources is expected to under-perform the Glencore PLC. In addition to that, Arafura Resources is 3.38 times more volatile than Glencore PLC. It trades about -0.02 of its total potential returns per unit of risk. Glencore PLC is currently generating about -0.03 per unit of volatility. If you would invest  500.00  in Glencore PLC on September 14, 2024 and sell it today you would lose (28.00) from holding Glencore PLC or give up 5.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Arafura Resources  vs.  Glencore PLC

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.

Glencore PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Glencore PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Glencore PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Arafura Resources and Glencore PLC

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

The idea behind Arafura Resources and Glencore PLC 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.