Correlation Between Australian Strategic and Iluka Resources

Can any of the company-specific risk be diversified away by investing in both Australian Strategic 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 Australian Strategic and Iluka Resources 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 Iluka Resources Ltd, you can compare the effects of market volatilities on Australian Strategic 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 Australian Strategic with a short position of Iluka Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Australian Strategic and Iluka Resources.

Diversification Opportunities for Australian Strategic and Iluka Resources

0.17

Correlation Coefficient

Australian Strategic  Iluka Resources

Average diversification

The 3 months correlation between Australian and Iluka is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Australian Strategic Materials and Iluka Resources Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iluka Resources 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 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 Australian Strategic i.e., Australian Strategic and Iluka Resources go up and down completely randomly.

Pair Corralation between Australian Strategic and Iluka Resources

Assuming the 90 days horizon Australian Strategic Materials is expected to under-perform the Iluka Resources. In addition to that, Australian Strategic is 1.5 times more volatile than Iluka Resources Ltd. It trades about -0.15 of its total potential returns per unit of risk. Iluka Resources Ltd is currently generating about -0.12 per unit of volatility. If you would invest  1,563  in Iluka Resources Ltd on December 1, 2024 and sell it today you would lose (202.00) from holding Iluka Resources Ltd or give up 12.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Australian Strategic Materials  vs.  Iluka Resources Ltd

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.

Iluka Resources

Risk-Adjusted Performance

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 weak performance in the last few months, the Stock's basic 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 Iluka Resources

The main advantage of trading using opposite Australian Strategic and Iluka Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Australian Strategic 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 Australian Strategic Materials 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.