Correlation Between Metals X and Arafura Resources

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

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

Diversification Opportunities for Metals X and Arafura Resources

0.52

Correlation Coefficient

Metals X  Arafura Resources

Very weak diversification

The 3 months correlation between Metals and Arafura is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Metals X Limited and Arafura Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arafura Resources and Metals X 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 Metals X Limited 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 Metals X i.e., Metals X and Arafura Resources go up and down completely randomly.

Pair Corralation between Metals X and Arafura Resources

Assuming the 90 days horizon Metals X Limited is expected to generate 0.94 times more return on investment than Arafura Resources. However, Metals X Limited is 1.06 times less risky than Arafura Resources. It trades about 0.01 of its potential returns per unit of risk. Arafura Resources is currently generating about -0.02 per unit of risk. If you would invest  29.00  in Metals X Limited on September 13, 2024 and sell it today you would lose (2.00) from holding Metals X Limited or give up 6.9% of portfolio value over 90 days.

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

Metals X Limited  vs.  Arafura Resources

Metals X Limited

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Metals X Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Metals X 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 Metals X and Arafura Resources

The main advantage of trading using opposite Metals X and Arafura Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Metals X 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 Metals X Limited 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.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.