Correlation Between Fortescue Metals and Aurelia Metals

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

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

Diversification Opportunities for Fortescue Metals and Aurelia Metals

0.18

Correlation Coefficient

Fortescue Metals  Aurelia Metals

Average diversification

The 3 months correlation between Fortescue and Aurelia is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group and Aurelia Metals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurelia Metals and Fortescue 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 Fortescue Metals Group are associated (or correlated) with Aurelia Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurelia Metals has no effect on the direction of Fortescue Metals i.e., Fortescue Metals and Aurelia Metals go up and down completely randomly.

Pair Corralation between Fortescue Metals and Aurelia Metals

Assuming the 90 days horizon Fortescue Metals Group is expected to generate 0.73 times more return on investment than Aurelia Metals. However, Fortescue Metals Group is 1.37 times less risky than Aurelia Metals. It trades about 0.09 of its potential returns per unit of risk. Aurelia Metals Limited is currently generating about 0.02 per unit of risk. If you would invest  2,206  in Fortescue Metals Group on September 3, 2024 and sell it today you would earn a total of  262.00  from holding Fortescue Metals Group or generate 11.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Fortescue Metals Group  vs.  Aurelia Metals Limited

Fortescue Metals

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fortescue Metals Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile technical and fundamental indicators, Fortescue Metals showed solid returns over the last few months and may actually be approaching a breakup point.

Aurelia Metals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aurelia Metals Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Aurelia 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 Fortescue Metals and Aurelia Metals

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

The idea behind Fortescue Metals Group and Aurelia Metals 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.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.