Correlation Between Iron Road and Iluka Resources
Can any of the company-specific risk be diversified away by investing in both Iron Road and Iluka 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 Iron Road and Iluka Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Iron Road and Iluka Resources, you can compare the effects of market volatilities on Iron Road and Iluka 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 Iron Road with a short position of Iluka Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iron Road and Iluka Resources.
Diversification Opportunities for Iron Road and Iluka Resources
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Iron and Iluka is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Iron Road and Iluka Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iluka Resources and Iron Road 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 Iron Road are associated (or correlated) with Iluka Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iluka Resources has no effect on the direction of Iron Road i.e., Iron Road and Iluka Resources go up and down completely randomly.
Pair Corralation between Iron Road and Iluka Resources
Assuming the 90 days trading horizon Iron Road is expected to generate 1.17 times more return on investment than Iluka Resources. However, Iron Road is 1.17 times more volatile than Iluka Resources. It trades about -0.04 of its potential returns per unit of risk. Iluka Resources is currently generating about -0.09 per unit of risk. If you would invest 6.40 in Iron Road on September 1, 2024 and sell it today you would lose (0.20) from holding Iron Road or give up 3.13% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Iron Road vs. Iluka Resources
Performance |
| Timeline |
| Iron Road |
| Iluka Resources |
Iron Road and Iluka Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Iron Road and Iluka Resources
The main advantage of trading using opposite Iron Road and Iluka Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iron Road position performs unexpectedly, Iluka 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 Iluka Resources will offset losses from the drop in Iluka Resources' long position.| Iron Road vs. Northern Star Resources | Iron Road vs. Evolution Mining | Iron Road vs. Bluescope Steel | Iron Road vs. Sandfire Resources NL |
| Iluka Resources vs. Black Rock Mining | Iluka Resources vs. Retail Food Group | Iluka Resources vs. Andean Silver Limited | Iluka Resources vs. Super Retail Group |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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