Correlation Between Fortescue Metals and Critical Elements
Can any of the company-specific risk be diversified away by investing in both Fortescue Metals and Critical Elements 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 Fortescue Metals and Critical Elements into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fortescue Metals Group and Critical Elements, you can compare the effects of market volatilities on Fortescue Metals and Critical Elements 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 Fortescue Metals with a short position of Critical Elements. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortescue Metals and Critical Elements.
Diversification Opportunities for Fortescue Metals and Critical Elements
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fortescue and Critical is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group and Critical Elements in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Critical Elements and Fortescue Metals 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 Fortescue Metals Group are associated (or correlated) with Critical Elements. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Critical Elements has no effect on the direction of Fortescue Metals i.e., Fortescue Metals and Critical Elements go up and down completely randomly.
Pair Corralation between Fortescue Metals and Critical Elements
Assuming the 90 days horizon Fortescue Metals Group is expected to generate 0.66 times more return on investment than Critical Elements. However, Fortescue Metals Group is 1.51 times less risky than Critical Elements. It trades about -0.01 of its potential returns per unit of risk. Critical Elements is currently generating about -0.42 per unit of risk. If you would invest 2,497 in Fortescue Metals Group on September 1, 2024 and sell it today you would lose (26.00) from holding Fortescue Metals Group or give up 1.04% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fortescue Metals Group vs. Critical Elements
Performance |
| Timeline |
| Fortescue Metals |
| Critical Elements |
Fortescue Metals and Critical Elements Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fortescue Metals and Critical Elements
The main advantage of trading using opposite Fortescue Metals and Critical Elements positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortescue Metals position performs unexpectedly, Critical Elements 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 Critical Elements will offset losses from the drop in Critical Elements' long position.| Fortescue Metals vs. IGO Limited | Fortescue Metals vs. Qubec Nickel Corp | Fortescue Metals vs. IGO Limited | Fortescue Metals vs. Hannan Metals |
| Critical Elements vs. Argosy Minerals Limited | Critical Elements vs. Aurelia Metals Limited | Critical Elements vs. Artemis Resources | Critical Elements vs. Ascendant Resources |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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