Correlation Between Fortescue Metals and Avarone Metals
Can any of the company-specific risk be diversified away by investing in both Fortescue Metals and Avarone Metals 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 Avarone Metals 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 Avarone Metals, you can compare the effects of market volatilities on Fortescue Metals and Avarone Metals 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 Avarone Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortescue Metals and Avarone Metals.
Diversification Opportunities for Fortescue Metals and Avarone Metals
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Fortescue and Avarone is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group and Avarone Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avarone Metals 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 Avarone Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avarone Metals has no effect on the direction of Fortescue Metals i.e., Fortescue Metals and Avarone Metals go up and down completely randomly.
Pair Corralation between Fortescue Metals and Avarone Metals
Assuming the 90 days horizon Fortescue Metals Group is expected to generate 0.14 times more return on investment than Avarone Metals. However, Fortescue Metals Group is 7.25 times less risky than Avarone Metals. It trades about -0.14 of its potential returns per unit of risk. Avarone Metals is currently generating about -0.21 per unit of risk. If you would invest 1,300 in Fortescue Metals Group on August 29, 2024 and sell it today you would lose (107.00) from holding Fortescue Metals Group or give up 8.23% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fortescue Metals Group vs. Avarone Metals
Performance |
| Timeline |
| Fortescue Metals |
| Avarone Metals |
Fortescue Metals and Avarone Metals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fortescue Metals and Avarone Metals
The main advantage of trading using opposite Fortescue Metals and Avarone Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortescue Metals position performs unexpectedly, Avarone Metals 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 Avarone Metals will offset losses from the drop in Avarone Metals' long position.The idea behind Fortescue Metals Group and Avarone Metals 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.| Avarone Metals vs. Aurelia Metals Limited | Avarone Metals vs. Adriatic Metals PLC | Avarone Metals vs. Progressive Planet Solutions | Avarone Metals vs. Almonty Industries |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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