Correlation Between Anglo American and Australian Vanadium

Can any of the company-specific risk be diversified away by investing in both Anglo American and Australian Vanadium 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 Anglo American and Australian Vanadium into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Anglo American plc and Australian Vanadium Limited, you can compare the effects of market volatilities on Anglo American and Australian Vanadium 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 Anglo American with a short position of Australian Vanadium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anglo American and Australian Vanadium.

Diversification Opportunities for Anglo American and Australian Vanadium

0.2

Correlation Coefficient

Anglo American  Australian Vanadium

Modest diversification

The 3 months correlation between Anglo and Australian is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Anglo American plc and Australian Vanadium Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Vanadium and Anglo American 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 Anglo American plc are associated (or correlated) with Australian Vanadium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Vanadium has no effect on the direction of Anglo American i.e., Anglo American and Australian Vanadium go up and down completely randomly.

Pair Corralation between Anglo American and Australian Vanadium

Assuming the 90 days horizon Anglo American plc is expected to generate 0.16 times more return on investment than Australian Vanadium. However, Anglo American plc is 6.21 times less risky than Australian Vanadium. It trades about 0.16 of its potential returns per unit of risk. Australian Vanadium Limited is currently generating about -0.05 per unit of risk. If you would invest  2,860  in Anglo American plc on December 30, 2024 and sell it today you would earn a total of  264.00  from holding Anglo American plc or generate 9.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Anglo American plc  vs.  Australian Vanadium Limited

Anglo American plc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Anglo American plc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking signals, Anglo American may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Australian Vanadium

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Australian Vanadium Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Australian Vanadium reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Anglo American and Australian Vanadium

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

The idea behind Anglo American plc and Australian Vanadium Limited 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.

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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.