Correlation Between Boliden AB and Lynas Rare

Can any of the company-specific risk be diversified away by investing in both Boliden AB and Lynas Rare 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 Boliden AB and Lynas Rare into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Boliden AB ADR and Lynas Rare Earths, you can compare the effects of market volatilities on Boliden AB and Lynas Rare 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 Boliden AB with a short position of Lynas Rare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Boliden AB and Lynas Rare.

Diversification Opportunities for Boliden AB and Lynas Rare

0.82

Correlation Coefficient

Boliden AB  Lynas Rare

Very poor diversification

The 3 months correlation between Boliden and Lynas is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Boliden AB ADR and Lynas Rare Earths in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lynas Rare Earths and Boliden AB 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 Boliden AB ADR are associated (or correlated) with Lynas Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lynas Rare Earths has no effect on the direction of Boliden AB i.e., Boliden AB and Lynas Rare go up and down completely randomly.

Pair Corralation between Boliden AB and Lynas Rare

Assuming the 90 days horizon Boliden AB ADR is expected to generate 1.24 times more return on investment than Lynas Rare. However, Boliden AB is 1.24 times more volatile than Lynas Rare Earths. It trades about -0.04 of its potential returns per unit of risk. Lynas Rare Earths is currently generating about -0.21 per unit of risk. If you would invest  6,373  in Boliden AB ADR on September 5, 2024 and sell it today you would lose (193.00) from holding Boliden AB ADR or give up 3.03% of portfolio value over 90 days.

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

Boliden AB ADR  vs.  Lynas Rare Earths

Boliden AB ADR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Boliden AB ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Boliden AB may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Lynas Rare Earths

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lynas Rare Earths are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Lynas Rare is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Boliden AB and Lynas Rare

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

The idea behind Boliden AB ADR and Lynas Rare Earths 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.