Correlation Between Forsys Metals and Aura Energy

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

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

Diversification Opportunities for Forsys Metals and Aura Energy

0.33

Correlation Coefficient

Forsys Metals  Aura Energy

Weak diversification

The 3 months correlation between Forsys and Aura is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Forsys Metals Corp 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 Forsys Metals 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 Forsys Metals Corp 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 Forsys Metals i.e., Forsys Metals and Aura Energy go up and down completely randomly.

Pair Corralation between Forsys Metals and Aura Energy

Assuming the 90 days horizon Forsys Metals Corp is expected to generate 1.73 times more return on investment than Aura Energy. However, Forsys Metals is 1.73 times more volatile than Aura Energy Limited. It trades about 0.06 of its potential returns per unit of risk. Aura Energy Limited is currently generating about -0.05 per unit of risk. If you would invest  43.00  in Forsys Metals Corp on December 28, 2024 and sell it today you would earn a total of  4.00  from holding Forsys Metals Corp or generate 9.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Forsys Metals Corp  vs.  Aura Energy Limited

Forsys Metals Corp

Risk-Adjusted Performance

Insignificant

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

Aura Energy Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aura Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Forsys Metals and Aura Energy

The main advantage of trading using opposite Forsys Metals and Aura Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Forsys Metals 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 Forsys Metals Corp 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.