Correlation Between Deep Yellow and Aura Energy

Can any of the company-specific risk be diversified away by investing in both Deep Yellow and Aura Energy 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 Deep Yellow and Aura Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Deep Yellow and Aura Energy

0.67

Correlation Coefficient

Deep Yellow  Aura Energy

Poor diversification

The 3 months correlation between Deep and Aura is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Deep Yellow and Aura Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aura Energy Limited and Deep Yellow 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 Deep Yellow are associated (or correlated) with Aura Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aura Energy Limited has no effect on the direction of Deep Yellow i.e., Deep Yellow and Aura Energy go up and down completely randomly.

Pair Corralation between Deep Yellow and Aura Energy

Assuming the 90 days horizon Deep Yellow is expected to generate 7.15 times less return on investment than Aura Energy. But when comparing it to its historical volatility, Deep Yellow is 1.49 times less risky than Aura Energy. It trades about 0.01 of its potential returns per unit of risk. Aura Energy Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  7.50  in Aura Energy Limited on December 27, 2024 and sell it today you would earn a total of  1.00  from holding Aura Energy Limited or generate 13.33% return on investment over 90 days.

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

Deep Yellow  vs.  Aura Energy Limited

Deep Yellow

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Deep Yellow are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Deep Yellow is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Aura Energy Limited

Risk-Adjusted Performance

Insignificant

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

Pair Trading with Deep Yellow and Aura Energy

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

The idea behind Deep Yellow and Aura Energy 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.