Correlation Between China Rare and Avarone Metals

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

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

Diversification Opportunities for China Rare and Avarone Metals

0.0

Correlation Coefficient

China Rare  Avarone Metals

Pay attention - limited upside

The 3 months correlation between China and Avarone is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding China Rare Earth and Avarone Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avarone Metals and China Rare 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 China Rare Earth are associated (or correlated) with Avarone Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avarone Metals has no effect on the direction of China Rare i.e., China Rare and Avarone Metals go up and down completely randomly.

Pair Corralation between China Rare and Avarone Metals

If you would invest  6.00  in China Rare Earth on December 26, 2024 and sell it today you would earn a total of  0.00  from holding China Rare Earth or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

China Rare Earth  vs.  Avarone Metals

China Rare Earth

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Rare Earth are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Rare reported solid returns over the last few months and may actually be approaching a breakup point.

Avarone Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Avarone Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Avarone Metals is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with China Rare and Avarone Metals

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

The idea behind China Rare Earth and Avarone Metals 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.