Correlation Between Iluka Resources and IGO

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

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

Diversification Opportunities for Iluka Resources and IGO

0.61

Correlation Coefficient

Iluka Resources  IGO

Poor diversification

The 3 months correlation between Iluka and IGO is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Iluka Resources Ltd and IGO Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IGO Limited and Iluka Resources 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 Iluka Resources Ltd are associated (or correlated) with IGO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IGO Limited has no effect on the direction of Iluka Resources i.e., Iluka Resources and IGO go up and down completely randomly.

Pair Corralation between Iluka Resources and IGO

Assuming the 90 days horizon Iluka Resources Ltd is expected to generate 1.13 times more return on investment than IGO. However, Iluka Resources is 1.13 times more volatile than IGO Limited. It trades about -0.05 of its potential returns per unit of risk. IGO Limited is currently generating about -0.08 per unit of risk. If you would invest  1,979  in Iluka Resources Ltd on September 4, 2024 and sell it today you would lose (218.00) from holding Iluka Resources Ltd or give up 11.02% of portfolio value over 90 days.

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

Iluka Resources Ltd  vs.  IGO Limited

Iluka Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iluka Resources Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

IGO Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IGO Limited 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 fundamental 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 Iluka Resources and IGO

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

The idea behind Iluka Resources Ltd and IGO Limited 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.