Correlation Between Arafura Resources and Alkane Resources

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

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

Diversification Opportunities for Arafura Resources and Alkane Resources

0.54

Correlation Coefficient

Arafura Resources  Alkane Resources

Very weak diversification

The 3 months correlation between Arafura and Alkane is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Arafura Resources and Alkane Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alkane Resources and Arafura Resources 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 Arafura Resources are associated (or correlated) with Alkane Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alkane Resources has no effect on the direction of Arafura Resources i.e., Arafura Resources and Alkane Resources go up and down completely randomly.

Pair Corralation between Arafura Resources and Alkane Resources

Assuming the 90 days horizon Arafura Resources is expected to generate 1.81 times more return on investment than Alkane Resources. However, Arafura Resources is 1.81 times more volatile than Alkane Resources Limited. It trades about 0.13 of its potential returns per unit of risk. Alkane Resources Limited is currently generating about 0.08 per unit of risk. If you would invest  7.20  in Arafura Resources on December 30, 2024 and sell it today you would earn a total of  4.80  from holding Arafura Resources or generate 66.67% return on investment over 90 days.

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

Arafura Resources  vs.  Alkane Resources Limited

Arafura Resources

Risk-Adjusted Performance

OK

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

Alkane Resources

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alkane Resources Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Alkane Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arafura Resources and Alkane Resources

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

The idea behind Arafura Resources and Alkane Resources 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.

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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.