Correlation Between Filo Mining and Arafura Resources

Can any of the company-specific risk be diversified away by investing in both Filo Mining and Arafura Resources 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 Filo Mining and Arafura Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Filo Mining and Arafura Resources

0.64

Correlation Coefficient

Filo Mining  Arafura Resources

Poor diversification

The 3 months correlation between Filo and Arafura is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Filo Mining Corp and Arafura Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arafura Resources and Filo Mining 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 Filo Mining Corp are associated (or correlated) with Arafura Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arafura Resources has no effect on the direction of Filo Mining i.e., Filo Mining and Arafura Resources go up and down completely randomly.

Pair Corralation between Filo Mining and Arafura Resources

Assuming the 90 days horizon Filo Mining Corp is expected to generate 0.12 times more return on investment than Arafura Resources. However, Filo Mining Corp is 8.44 times less risky than Arafura Resources. It trades about -0.05 of its potential returns per unit of risk. Arafura Resources is currently generating about -0.02 per unit of risk. If you would invest  2,314  in Filo Mining Corp on September 13, 2024 and sell it today you would lose (67.00) from holding Filo Mining Corp or give up 2.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Filo Mining Corp  vs.  Arafura Resources

Filo Mining Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Filo Mining Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Filo Mining is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Arafura Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arafura Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Filo Mining and Arafura Resources

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

The idea behind Filo Mining Corp and Arafura Resources 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.