Correlation Between Red Moon and Arafura Resources
Can any of the company-specific risk be diversified away by investing in both Red Moon 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 Red Moon and Arafura Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Red Moon Resources and Arafura Resources, you can compare the effects of market volatilities on Red Moon 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 Red Moon with a short position of Arafura Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Red Moon and Arafura Resources.
Diversification Opportunities for Red Moon and Arafura Resources
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Red and Arafura is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Red Moon Resources and Arafura Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arafura Resources and Red Moon 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 Red Moon Resources 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 Red Moon i.e., Red Moon and Arafura Resources go up and down completely randomly.
Pair Corralation between Red Moon and Arafura Resources
Assuming the 90 days horizon Red Moon Resources is expected to generate 0.42 times more return on investment than Arafura Resources. However, Red Moon Resources is 2.41 times less risky than Arafura Resources. It trades about 0.0 of its potential returns per unit of risk. Arafura Resources is currently generating about -0.01 per unit of risk. If you would invest 47.00 in Red Moon Resources on August 29, 2024 and sell it today you would lose (3.00) from holding Red Moon Resources or give up 6.38% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Red Moon Resources vs. Arafura Resources
Performance |
| Timeline |
| Red Moon Resources |
| Arafura Resources |
Red Moon and Arafura Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Red Moon and Arafura Resources
The main advantage of trading using opposite Red Moon and Arafura Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Red Moon 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.| Red Moon vs. Aurwest Resources | Red Moon vs. Benton Resources | Red Moon vs. Pan Global Resources | Red Moon vs. Tower Resources |
| 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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