Correlation Between Lynas Rare and Arafura Resources
Can any of the company-specific risk be diversified away by investing in both Lynas Rare and Arafura 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 Lynas Rare and Arafura Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lynas Rare Earths and Arafura Resources, you can compare the effects of market volatilities on Lynas Rare and Arafura 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 Lynas Rare with a short position of Arafura Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lynas Rare and Arafura Resources.
Diversification Opportunities for Lynas Rare and Arafura Resources
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Lynas and Arafura is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Lynas Rare Earths and Arafura Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arafura Resources and Lynas Rare 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 Lynas Rare Earths are associated (or correlated) with Arafura Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arafura Resources has no effect on the direction of Lynas Rare i.e., Lynas Rare and Arafura Resources go up and down completely randomly.
Pair Corralation between Lynas Rare and Arafura Resources
Assuming the 90 days horizon Lynas Rare Earths is expected to generate 0.25 times more return on investment than Arafura Resources. However, Lynas Rare Earths is 4.0 times less risky than Arafura Resources. It trades about 0.01 of its potential returns per unit of risk. Arafura Resources is currently generating about -0.01 per unit of risk. If you would invest 440.00 in Lynas Rare Earths on August 29, 2024 and sell it today you would earn a total of 2.00 from holding Lynas Rare Earths or generate 0.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lynas Rare Earths vs. Arafura Resources
Performance |
| Timeline |
| Lynas Rare Earths |
| Arafura Resources |
Lynas Rare and Arafura Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lynas Rare and Arafura Resources
The main advantage of trading using opposite Lynas Rare and Arafura Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lynas Rare position performs unexpectedly, Arafura 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 Arafura Resources will offset losses from the drop in Arafura Resources' long position.| Lynas Rare vs. Arafura Resources | Lynas Rare vs. Texas Rare Earth | Lynas Rare vs. Ucore Rare Metals | Lynas Rare vs. Lynas Rare Earths |
| Arafura Resources vs. Texas Rare Earth | Arafura Resources vs. Lynas Rare Earths | Arafura Resources vs. Ucore Rare Metals | Arafura Resources vs. Aurelia Metals Limited |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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