Correlation Between Adriatic Metals and Iluka Resources

Can any of the company-specific risk be diversified away by investing in both Adriatic Metals 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 Adriatic Metals and Iluka Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Adriatic Metals PLC and Iluka Resources Ltd, you can compare the effects of market volatilities on Adriatic Metals 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 Adriatic Metals with a short position of Iluka Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adriatic Metals and Iluka Resources.

Diversification Opportunities for Adriatic Metals and Iluka Resources

0.3

Correlation Coefficient

Adriatic Metals  Iluka Resources

Weak diversification

The 3 months correlation between Adriatic and Iluka is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Adriatic Metals PLC and Iluka Resources Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iluka Resources and Adriatic Metals 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 Adriatic Metals PLC 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 Adriatic Metals i.e., Adriatic Metals and Iluka Resources go up and down completely randomly.

Pair Corralation between Adriatic Metals and Iluka Resources

Assuming the 90 days horizon Adriatic Metals PLC is expected to generate 0.81 times more return on investment than Iluka Resources. However, Adriatic Metals PLC is 1.23 times less risky than Iluka Resources. It trades about -0.19 of its potential returns per unit of risk. Iluka Resources Ltd is currently generating about -0.34 per unit of risk. If you would invest  290.00  in Adriatic Metals PLC on September 1, 2024 and sell it today you would lose (27.00) from holding Adriatic Metals PLC or give up 9.31% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Adriatic Metals PLC  vs.  Iluka Resources Ltd

Adriatic Metals PLC

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Adriatic Metals PLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Adriatic Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Iluka Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iluka Resources Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Adriatic Metals and Iluka Resources

The main advantage of trading using opposite Adriatic Metals and Iluka Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Adriatic Metals 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.

The idea behind Adriatic Metals PLC and Iluka Resources Ltd 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.