Correlation Between Arafura Resources and Aclara Resources

Can any of the company-specific risk be diversified away by investing in both Arafura Resources and Aclara 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 Aclara 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 Aclara Resources, you can compare the effects of market volatilities on Arafura Resources and Aclara 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 Aclara Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arafura Resources and Aclara Resources.

Diversification Opportunities for Arafura Resources and Aclara Resources

0.63

Correlation Coefficient

Arafura Resources  Aclara Resources

Poor diversification

The 3 months correlation between Arafura and Aclara is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Arafura Resources and Aclara Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aclara 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 Aclara Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aclara Resources has no effect on the direction of Arafura Resources i.e., Arafura Resources and Aclara Resources go up and down completely randomly.

Pair Corralation between Arafura Resources and Aclara Resources

Assuming the 90 days horizon Arafura Resources is expected to under-perform the Aclara Resources. In addition to that, Arafura Resources is 1.92 times more volatile than Aclara Resources. It trades about -0.04 of its total potential returns per unit of risk. Aclara Resources is currently generating about -0.04 per unit of volatility. If you would invest  36.00  in Aclara Resources on September 3, 2024 and sell it today you would lose (5.00) from holding Aclara Resources or give up 13.89% of portfolio value over 90 days.

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

Arafura Resources  vs.  Aclara Resources

Arafura Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arafura Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Aclara Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aclara Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Arafura Resources and Aclara Resources

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

The idea behind Arafura Resources and Aclara Resources 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 Stocks Directory module to find actively traded stocks across global markets.