Correlation Between China Rare and Adriatic Metals

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Can any of the company-specific risk be diversified away by investing in both China Rare and Adriatic Metals 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 China Rare and Adriatic Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Rare Earth and Adriatic Metals PLC, you can compare the effects of market volatilities on China Rare and Adriatic Metals 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 China Rare with a short position of Adriatic Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Rare and Adriatic Metals.

Diversification Opportunities for China Rare and Adriatic Metals

0.82
  Correlation Coefficient

Very poor diversification

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

Pair Corralation between China Rare and Adriatic Metals

Assuming the 90 days horizon China Rare Earth is expected to generate 8.36 times more return on investment than Adriatic Metals. However, China Rare is 8.36 times more volatile than Adriatic Metals PLC. It trades about 0.19 of its potential returns per unit of risk. Adriatic Metals PLC is currently generating about 0.13 per unit of risk. If you would invest  1.00  in China Rare Earth on September 2, 2024 and sell it today you would earn a total of  5.00  from holding China Rare Earth or generate 500.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy98.46%
ValuesDaily Returns

China Rare Earth  vs.  Adriatic Metals PLC

 Performance 
       Timeline  
China Rare Earth 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in China Rare Earth are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, China Rare reported solid returns over the last few months and may actually be approaching a breakup point.
Adriatic Metals PLC 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Adriatic Metals PLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain essential indicators, Adriatic Metals reported solid returns over the last few months and may actually be approaching a breakup point.

China Rare and Adriatic Metals Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with China Rare and Adriatic Metals

The main advantage of trading using opposite China Rare and Adriatic Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Rare position performs unexpectedly, Adriatic Metals 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 Adriatic Metals will offset losses from the drop in Adriatic Metals' long position.
The idea behind China Rare Earth and Adriatic Metals 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.
Check out your portfolio center.
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.

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