Correlation Between Australian Vanadium and Critical Elements

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

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

Diversification Opportunities for Australian Vanadium and Critical Elements

0.13

Correlation Coefficient

Australian Vanadium  Critical Elements

Average diversification

The 3 months correlation between Australian and Critical is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Australian Vanadium Limited and Critical Elements in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Critical Elements and Australian Vanadium 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 Australian Vanadium Limited are associated (or correlated) with Critical Elements. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Critical Elements has no effect on the direction of Australian Vanadium i.e., Australian Vanadium and Critical Elements go up and down completely randomly.

Pair Corralation between Australian Vanadium and Critical Elements

Assuming the 90 days horizon Australian Vanadium Limited is expected to generate 4.0 times more return on investment than Critical Elements. However, Australian Vanadium is 4.0 times more volatile than Critical Elements. It trades about 0.03 of its potential returns per unit of risk. Critical Elements is currently generating about -0.01 per unit of risk. If you would invest  1.31  in Australian Vanadium Limited on September 15, 2024 and sell it today you would lose (0.49) from holding Australian Vanadium Limited or give up 37.4% of portfolio value over 90 days.

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

Australian Vanadium Limited  vs.  Critical Elements

Australian Vanadium

Risk-Adjusted Performance

2 of 100

Weak

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

Critical Elements

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Australian Vanadium and Critical Elements

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

The idea behind Australian Vanadium Limited and Critical Elements 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.