Correlation Between Avarone Metals and Australian Vanadium

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

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

Diversification Opportunities for Avarone Metals and Australian Vanadium

0.06

Correlation Coefficient

Avarone Metals  Australian Vanadium

Significant diversification

The 3 months correlation between Avarone and Australian is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Avarone Metals and Australian Vanadium Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Vanadium and Avarone 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 Avarone Metals are associated (or correlated) with Australian Vanadium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Vanadium has no effect on the direction of Avarone Metals i.e., Avarone Metals and Australian Vanadium go up and down completely randomly.

Pair Corralation between Avarone Metals and Australian Vanadium

Assuming the 90 days horizon Avarone Metals is expected to generate 2.9 times less return on investment than Australian Vanadium. But when comparing it to its historical volatility, Avarone Metals is 1.15 times less risky than Australian Vanadium. It trades about 0.02 of its potential returns per unit of risk. Australian Vanadium Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2.29  in Australian Vanadium Limited on August 31, 2024 and sell it today you would lose (1.59) from holding Australian Vanadium Limited or give up 69.43% of portfolio value over 90 days.

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

Avarone Metals  vs.  Australian Vanadium Limited

Avarone Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avarone Metals 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.

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.

Pair Trading with Avarone Metals and Australian Vanadium

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

The idea behind Avarone Metals and Australian Vanadium 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.