Correlation Between CAT Strategic and Arafura Resources

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

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

Diversification Opportunities for CAT Strategic and Arafura Resources

-0.14

Correlation Coefficient

CAT Strategic  Arafura Resources

Good diversification

The 3 months correlation between CAT and Arafura is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding CAT Strategic Metals and Arafura Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arafura Resources and CAT 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 CAT Strategic Metals 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 CAT Strategic i.e., CAT Strategic and Arafura Resources go up and down completely randomly.

Pair Corralation between CAT Strategic and Arafura Resources

Assuming the 90 days horizon CAT Strategic Metals is expected to generate 11.97 times more return on investment than Arafura Resources. However, CAT Strategic is 11.97 times more volatile than Arafura Resources. It trades about 0.13 of its potential returns per unit of risk. Arafura Resources is currently generating about 0.14 per unit of risk. If you would invest  0.01  in CAT Strategic Metals on December 28, 2024 and sell it today you would earn a total of  0.14  from holding CAT Strategic Metals or generate 1400.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

CAT Strategic Metals  vs.  Arafura Resources

CAT Strategic Metals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CAT Strategic Metals are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CAT Strategic reported solid returns over the last few months and may actually be approaching a breakup point.

Arafura Resources

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Arafura Resources are ranked lower than 11 (%) 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 CAT Strategic and Arafura Resources

The main advantage of trading using opposite CAT Strategic and Arafura Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CAT Strategic 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 CAT Strategic Metals 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.