Correlation Between IGO and Australian Strategic

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

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

Diversification Opportunities for IGO and Australian Strategic

-0.1

Correlation Coefficient

IGO  Australian Strategic

Good diversification

The 3 months correlation between IGO and Australian is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding IGO Limited and Australian Strategic Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Strategic and IGO 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 IGO Limited are associated (or correlated) with Australian Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Strategic has no effect on the direction of IGO i.e., IGO and Australian Strategic go up and down completely randomly.

Pair Corralation between IGO and Australian Strategic

Assuming the 90 days horizon IGO Limited is expected to under-perform the Australian Strategic. But the pink sheet apears to be less risky and, when comparing its historical volatility, IGO Limited is 1.49 times less risky than Australian Strategic. The pink sheet trades about -0.12 of its potential returns per unit of risk. The Australian Strategic Materials is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  30.00  in Australian Strategic Materials on December 1, 2024 and sell it today you would lose (5.00) from holding Australian Strategic Materials or give up 16.67% of portfolio value over 90 days.

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

IGO Limited  vs.  Australian Strategic Materials

IGO Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days IGO Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Australian Strategic

Risk-Adjusted Performance

Very Weak

Over the last 90 days Australian Strategic Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with IGO and Australian Strategic

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

The idea behind IGO Limited and Australian Strategic Materials 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.