Correlation Between Base Resources and Metals X

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

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

Diversification Opportunities for Base Resources and Metals X

-0.3

Correlation Coefficient

Base Resources  Metals X

Very good diversification

The 3 months correlation between Base and Metals is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Base Resources Limited and Metals X Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metals X Limited and Base Resources 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 Base Resources Limited are associated (or correlated) with Metals X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metals X Limited has no effect on the direction of Base Resources i.e., Base Resources and Metals X go up and down completely randomly.

Pair Corralation between Base Resources and Metals X

Assuming the 90 days horizon Base Resources Limited is expected to generate 1.19 times more return on investment than Metals X. However, Base Resources is 1.19 times more volatile than Metals X Limited. It trades about 0.29 of its potential returns per unit of risk. Metals X Limited is currently generating about 0.06 per unit of risk. If you would invest  13.00  in Base Resources Limited on September 4, 2024 and sell it today you would earn a total of  7.00  from holding Base Resources Limited or generate 53.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	37.5%
Values	Daily Returns

Base Resources Limited  vs.  Metals X Limited

Base Resources

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Base Resources Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Base Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Metals X Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Metals X Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Metals X reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Base Resources and Metals X

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

The idea behind Base Resources Limited and Metals X 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.