Correlation Between Arafura Resources and Snow Lake

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

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

Diversification Opportunities for Arafura Resources and Snow Lake

0.75

Correlation Coefficient

Arafura Resources  Snow Lake

Poor diversification

The 3 months correlation between Arafura and Snow is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Arafura Resources and Snow Lake Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Snow Lake Resources 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 Snow Lake. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Snow Lake Resources has no effect on the direction of Arafura Resources i.e., Arafura Resources and Snow Lake go up and down completely randomly.

Pair Corralation between Arafura Resources and Snow Lake

Assuming the 90 days horizon Arafura Resources is expected to generate 1.12 times more return on investment than Snow Lake. However, Arafura Resources is 1.12 times more volatile than Snow Lake Resources. It trades about -0.02 of its potential returns per unit of risk. Snow Lake Resources is currently generating about -0.15 per unit of risk. If you would invest  10.00  in Arafura Resources on September 14, 2024 and sell it today you would lose (2.00) from holding Arafura Resources or give up 20.0% 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.  Snow Lake 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.

Snow Lake Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Snow Lake Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Arafura Resources and Snow Lake

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

The idea behind Arafura Resources and Snow Lake 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.