Correlation Between China Rare and Avarone Metals

Can any of the company-specific risk be diversified away by investing in both China Rare and Avarone 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 Avarone 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 Avarone Metals, you can compare the effects of market volatilities on China Rare and Avarone 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 Avarone Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Rare and Avarone Metals.

Diversification Opportunities for China Rare and Avarone Metals

-0.3

Correlation Coefficient

China Rare  Avarone Metals

Very good diversification

The 3 months correlation between China and Avarone is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding China Rare Earth and Avarone Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avarone Metals 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 Avarone Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avarone Metals has no effect on the direction of China Rare i.e., China Rare and Avarone Metals go up and down completely randomly.

Pair Corralation between China Rare and Avarone Metals

Assuming the 90 days horizon China Rare Earth is expected to generate 2.92 times more return on investment than Avarone Metals. However, China Rare is 2.92 times more volatile than Avarone Metals. It trades about 0.18 of its potential returns per unit of risk. Avarone Metals is currently generating about -0.13 per unit of risk. If you would invest  1.00  in China Rare Earth on August 31, 2024 and sell it today you would earn a total of  4.00  from holding China Rare Earth or generate 400.0% return on investment over 90 days.

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

China Rare Earth  vs.  Avarone Metals

China Rare Earth

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Rare Earth are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Rare reported solid returns over the last few months and may actually be approaching a breakup point.

Avarone Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avarone Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with China Rare and Avarone Metals

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

The idea behind China Rare Earth and Avarone Metals 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.