Correlation Between Aurelia Metals and Arafura Resources

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

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

Diversification Opportunities for Aurelia Metals and Arafura Resources

0.8

Correlation Coefficient

Aurelia Metals  Arafura Resources

Very poor diversification

The 3 months correlation between Aurelia and Arafura is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Aurelia Metals Limited and Arafura Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arafura Resources and Aurelia Metals 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 Aurelia Metals Limited are associated (or correlated) with Arafura Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arafura Resources has no effect on the direction of Aurelia Metals i.e., Aurelia Metals and Arafura Resources go up and down completely randomly.

Pair Corralation between Aurelia Metals and Arafura Resources

Assuming the 90 days horizon Aurelia Metals is expected to generate 10.71 times less return on investment than Arafura Resources. But when comparing it to its historical volatility, Aurelia Metals Limited is 10.28 times less risky than Arafura Resources. It trades about 0.12 of its potential returns per unit of risk. Arafura Resources is currently generating about 0.13 of returns per unit of risk over similar time horizon. 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	Strong
Accuracy	95.38%
Values	Daily Returns

Aurelia Metals Limited  vs.  Arafura Resources

Aurelia Metals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aurelia Metals Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Aurelia Metals may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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.

Pair Trading with Aurelia Metals and Arafura Resources

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

The idea behind Aurelia Metals Limited and Arafura 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.