Correlation Between Metals X and Ardea Resources

Can any of the company-specific risk be diversified away by investing in both Metals X and Ardea 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 Ardea 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 Ardea Resources Limited, you can compare the effects of market volatilities on Metals X and Ardea 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 Ardea Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metals X and Ardea Resources.

Diversification Opportunities for Metals X and Ardea Resources

0.67

Correlation Coefficient

Metals X  Ardea Resources

Poor diversification

The 3 months correlation between Metals and Ardea is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Metals X Limited and Ardea Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ardea 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 Ardea Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ardea Resources has no effect on the direction of Metals X i.e., Metals X and Ardea Resources go up and down completely randomly.

Pair Corralation between Metals X and Ardea Resources

Assuming the 90 days horizon Metals X Limited is expected to under-perform the Ardea Resources. In addition to that, Metals X is 1.16 times more volatile than Ardea Resources Limited. It trades about -0.04 of its total potential returns per unit of risk. Ardea Resources Limited is currently generating about -0.03 per unit of volatility. If you would invest  24.00  in Ardea Resources Limited on September 22, 2024 and sell it today you would lose (4.00) from holding Ardea Resources Limited or give up 16.67% of portfolio value over 90 days.

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

Metals X Limited  vs.  Ardea Resources Limited

Metals X Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metals X Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and 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.

Ardea Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ardea Resources Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic 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 Ardea Resources

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

The idea behind Metals X Limited and Ardea Resources 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.