Correlation Between Lundin Mining and AES Corp

Can any of the company-specific risk be diversified away by investing in both Lundin Mining and AES Corp 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 Lundin Mining and AES Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lundin Mining Corp and AES Corp, you can compare the effects of market volatilities on Lundin Mining and AES Corp 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 Lundin Mining with a short position of AES Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lundin Mining and AES Corp.

Diversification Opportunities for Lundin Mining and AES Corp

0.41

Correlation Coefficient

Lundin Mining  AES Corp

Very weak diversification

The 3 months correlation between Lundin and AES is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Lundin Mining Corp and AES Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AES Corp and Lundin Mining 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 Lundin Mining Corp are associated (or correlated) with AES Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AES Corp has no effect on the direction of Lundin Mining i.e., Lundin Mining and AES Corp go up and down completely randomly.

Pair Corralation between Lundin Mining and AES Corp

Assuming the 90 days trading horizon Lundin Mining Corp is expected to under-perform the AES Corp. But the stock apears to be less risky and, when comparing its historical volatility, Lundin Mining Corp is 1.07 times less risky than AES Corp. The stock trades about -0.01 of its potential returns per unit of risk. The AES Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,280  in AES Corp on December 21, 2024 and sell it today you would earn a total of  30.00  from holding AES Corp or generate 2.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.72%
Values	Daily Returns

Lundin Mining Corp  vs.  AES Corp

Lundin Mining Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lundin Mining Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Lundin Mining is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

AES Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AES Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, AES Corp is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Lundin Mining and AES Corp

The main advantage of trading using opposite Lundin Mining and AES Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lundin Mining position performs unexpectedly, AES Corp 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 AES Corp will offset losses from the drop in AES Corp's long position.

The idea behind Lundin Mining Corp and AES Corp 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.