Correlation Between Defense Metals and Ucore Rare

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

By analyzing existing cross correlation between Defense Metals Corp and Ucore Rare Metals, you can compare the effects of market volatilities on Defense Metals and Ucore 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 Defense Metals with a short position of Ucore Rare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Defense Metals and Ucore Rare.

Diversification Opportunities for Defense Metals and Ucore Rare

0.35

Correlation Coefficient

Defense Metals  Ucore Rare

Weak diversification

The 3 months correlation between Defense and Ucore is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Defense Metals Corp and Ucore Rare Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ucore Rare Metals and Defense Metals 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 Defense Metals Corp are associated (or correlated) with Ucore Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ucore Rare Metals has no effect on the direction of Defense Metals i.e., Defense Metals and Ucore Rare go up and down completely randomly.

Pair Corralation between Defense Metals and Ucore Rare

Assuming the 90 days trading horizon Defense Metals Corp is expected to generate 1.35 times more return on investment than Ucore Rare. However, Defense Metals is 1.35 times more volatile than Ucore Rare Metals. It trades about 0.13 of its potential returns per unit of risk. Ucore Rare Metals is currently generating about 0.09 per unit of risk. If you would invest  9.00  in Defense Metals Corp on September 22, 2024 and sell it today you would earn a total of  5.00  from holding Defense Metals Corp or generate 55.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Defense Metals Corp  vs.  Ucore Rare Metals

Defense Metals Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Defense Metals Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Defense Metals showed solid returns over the last few months and may actually be approaching a breakup point.

Ucore Rare Metals

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ucore Rare Metals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Ucore Rare showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Defense Metals and Ucore Rare

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

The idea behind Defense Metals Corp and Ucore Rare 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.

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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.