Correlation Between Arafura Resources and Lynas Rare
Can any of the company-specific risk be diversified away by investing in both Arafura Resources and Lynas Rare 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 Arafura Resources and Lynas Rare into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Arafura Resources and Lynas Rare Earths, you can compare the effects of market volatilities on Arafura Resources and Lynas Rare 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 Arafura Resources with a short position of Lynas Rare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arafura Resources and Lynas Rare.
Diversification Opportunities for Arafura Resources and Lynas Rare
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Arafura and Lynas is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Arafura Resources and Lynas Rare Earths in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lynas Rare Earths and Arafura 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 Arafura Resources are associated (or correlated) with Lynas Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lynas Rare Earths has no effect on the direction of Arafura Resources i.e., Arafura Resources and Lynas Rare go up and down completely randomly.
Pair Corralation between Arafura Resources and Lynas Rare
Assuming the 90 days horizon Arafura Resources is expected to generate 3.47 times more return on investment than Lynas Rare. However, Arafura Resources is 3.47 times more volatile than Lynas Rare Earths. It trades about 0.01 of its potential returns per unit of risk. Lynas Rare Earths is currently generating about -0.01 per unit of risk. If you would invest 27.00 in Arafura Resources on August 26, 2024 and sell it today you would lose (18.00) from holding Arafura Resources or give up 66.67% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Arafura Resources vs. Lynas Rare Earths
Performance |
| Timeline |
| Arafura Resources |
| Lynas Rare Earths |
Arafura Resources and Lynas Rare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Arafura Resources and Lynas Rare
The main advantage of trading using opposite Arafura Resources and Lynas Rare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arafura Resources position performs unexpectedly, Lynas Rare 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 Lynas Rare will offset losses from the drop in Lynas Rare's long position.| Arafura Resources vs. Norra Metals Corp | Arafura Resources vs. ZincX Resources Corp | Arafura Resources vs. Nuinsco Resources Limited | Arafura Resources vs. South Star Battery |
| Lynas Rare vs. Norra Metals Corp | Lynas Rare vs. ZincX Resources Corp | Lynas Rare vs. Nuinsco Resources Limited | Lynas Rare vs. South Star Battery |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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