Correlation Between Australian Strategic and IGO

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

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

Diversification Opportunities for Australian Strategic and IGO

0.73

Correlation Coefficient

Australian Strategic  IGO

Poor diversification

The 3 months correlation between Australian and IGO is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Australian Strategic Materials and IGO Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IGO Limited and Australian Strategic 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 Australian Strategic Materials are associated (or correlated) with IGO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IGO Limited has no effect on the direction of Australian Strategic i.e., Australian Strategic and IGO go up and down completely randomly.

Pair Corralation between Australian Strategic and IGO

Assuming the 90 days horizon Australian Strategic Materials is expected to under-perform the IGO. In addition to that, Australian Strategic is 1.52 times more volatile than IGO Limited. It trades about -0.1 of its total potential returns per unit of risk. IGO Limited is currently generating about -0.11 per unit of volatility. If you would invest  601.00  in IGO Limited on December 29, 2024 and sell it today you would lose (106.00) from holding IGO Limited or give up 17.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Australian Strategic Materials  vs.  IGO Limited

Australian Strategic

Risk-Adjusted Performance

Very Weak

Over the last 90 days Australian Strategic Materials 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 primary indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

IGO Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days IGO Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Australian Strategic and IGO

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

The idea behind Australian Strategic Materials and IGO 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.