Correlation Between Focus Graphite and Avarone Metals

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

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

Diversification Opportunities for Focus Graphite and Avarone Metals

0.48

Correlation Coefficient

Focus Graphite  Avarone Metals

Very weak diversification

The 3 months correlation between Focus and Avarone is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Focus Graphite and Avarone Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avarone Metals and Focus Graphite 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 Focus Graphite 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 Focus Graphite i.e., Focus Graphite and Avarone Metals go up and down completely randomly.

Pair Corralation between Focus Graphite and Avarone Metals

Assuming the 90 days horizon Focus Graphite is expected to under-perform the Avarone Metals. But the otc stock apears to be less risky and, when comparing its historical volatility, Focus Graphite is 2.09 times less risky than Avarone Metals. The otc stock trades about -0.01 of its potential returns per unit of risk. The Avarone Metals is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  0.90  in Avarone Metals on September 2, 2024 and sell it today you would lose (0.57) from holding Avarone Metals or give up 63.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Focus Graphite  vs.  Avarone Metals

Focus Graphite

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Focus Graphite 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 primary indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Focus Graphite and Avarone Metals

The main advantage of trading using opposite Focus Graphite and Avarone Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Focus Graphite 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 Focus Graphite 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.