Correlation Between China Rare and Defense Metals

Can any of the company-specific risk be diversified away by investing in both China Rare and Defense 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 Defense 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 Defense Metals Corp, you can compare the effects of market volatilities on China Rare and Defense 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 Defense Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Rare and Defense Metals.

Diversification Opportunities for China Rare and Defense Metals

0.41

Correlation Coefficient

China Rare  Defense Metals

Very weak diversification

The 3 months correlation between China and Defense is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding China Rare Earth and Defense Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defense Metals Corp 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 Defense Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defense Metals Corp has no effect on the direction of China Rare i.e., China Rare and Defense Metals go up and down completely randomly.

Pair Corralation between China Rare and Defense Metals

Assuming the 90 days horizon China Rare Earth is expected to generate 2.57 times more return on investment than Defense Metals. However, China Rare is 2.57 times more volatile than Defense Metals Corp. It trades about 0.15 of its potential returns per unit of risk. Defense Metals Corp is currently generating about 0.07 per unit of risk. If you would invest  3.00  in China Rare Earth on September 5, 2024 and sell it today you would earn a total of  3.00  from holding China Rare Earth or generate 100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

China Rare Earth  vs.  Defense Metals Corp

China Rare Earth

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Rare Earth are ranked lower than 11 (%) 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.

Defense Metals Corp

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with China Rare and Defense Metals

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

The idea behind China Rare Earth and Defense Metals Corp 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.