Correlation Between Australian Vanadium and Vital Metals

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

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

Diversification Opportunities for Australian Vanadium and Vital Metals

-0.05

Correlation Coefficient

Australian Vanadium  Vital Metals

Good diversification

The 3 months correlation between Australian and Vital is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Australian Vanadium Limited and Vital Metals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vital Metals Limited and Australian Vanadium 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 Vanadium Limited are associated (or correlated) with Vital Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vital Metals Limited has no effect on the direction of Australian Vanadium i.e., Australian Vanadium and Vital Metals go up and down completely randomly.

Pair Corralation between Australian Vanadium and Vital Metals

Assuming the 90 days horizon Australian Vanadium Limited is expected to under-perform the Vital Metals. But the pink sheet apears to be less risky and, when comparing its historical volatility, Australian Vanadium Limited is 2.14 times less risky than Vital Metals. The pink sheet trades about -0.04 of its potential returns per unit of risk. The Vital Metals Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  0.22  in Vital Metals Limited on August 31, 2024 and sell it today you would lose (0.02) from holding Vital Metals Limited or give up 9.09% of portfolio value over 90 days.

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

Australian Vanadium Limited  vs.  Vital Metals Limited

Australian Vanadium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Australian Vanadium Limited 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 basic indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Vital Metals Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vital Metals Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Vital Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Australian Vanadium and Vital Metals

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

The idea behind Australian Vanadium Limited and Vital Metals 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .