Correlation Between Australian Strategic and American Rare
Can any of the company-specific risk be diversified away by investing in both Australian Strategic and American 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 Australian Strategic and American Rare into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Australian Strategic Materials and American Rare Earths, you can compare the effects of market volatilities on Australian Strategic and American 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 Australian Strategic with a short position of American Rare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Australian Strategic and American Rare.
Diversification Opportunities for Australian Strategic and American Rare
0.24 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Australian and American is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Australian Strategic Materials and American Rare Earths in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Rare Earths and Australian Strategic 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 Australian Strategic Materials are associated (or correlated) with American Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Rare Earths has no effect on the direction of Australian Strategic i.e., Australian Strategic and American Rare go up and down completely randomly.
Pair Corralation between Australian Strategic and American Rare
Assuming the 90 days trading horizon Australian Strategic Materials is expected to under-perform the American Rare. In addition to that, Australian Strategic is 1.03 times more volatile than American Rare Earths. It trades about -0.1 of its total potential returns per unit of risk. American Rare Earths is currently generating about 0.06 per unit of volatility. If you would invest 26.00 in American Rare Earths on September 13, 2024 and sell it today you would earn a total of 1.00 from holding American Rare Earths or generate 3.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Australian Strategic Materials vs. American Rare Earths
Performance |
| Timeline |
| Australian Strategic |
| American Rare Earths |
Australian Strategic and American Rare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Australian Strategic and American Rare
The main advantage of trading using opposite Australian Strategic and American Rare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Australian Strategic position performs unexpectedly, American 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 American Rare will offset losses from the drop in American Rare's long position.| Australian Strategic vs. Northern Star Resources | Australian Strategic vs. Evolution Mining | Australian Strategic vs. Bluescope Steel | Australian Strategic vs. Sandfire Resources NL |
| American Rare vs. Northern Star Resources | American Rare vs. Evolution Mining | American Rare vs. Bluescope Steel | American Rare vs. Sandfire Resources NL |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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