Correlation Between Iluka Resources and Australian Strategic

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

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

Diversification Opportunities for Iluka Resources and Australian Strategic

0.75

Correlation Coefficient

Iluka Resources  Australian Strategic

Poor diversification

The 3 months correlation between Iluka and Australian is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Iluka Resources Ltd and Australian Strategic Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Strategic and Iluka Resources 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 Iluka Resources Ltd 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 Iluka Resources i.e., Iluka Resources and Australian Strategic go up and down completely randomly.

Pair Corralation between Iluka Resources and Australian Strategic

Assuming the 90 days horizon Iluka Resources Ltd is expected to under-perform the Australian Strategic. But the pink sheet apears to be less risky and, when comparing its historical volatility, Iluka Resources Ltd is 1.53 times less risky than Australian Strategic. The pink sheet trades about -0.04 of its potential returns per unit of risk. The Australian Strategic Materials is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  33.00  in Australian Strategic Materials on September 3, 2024 and sell it today you would lose (3.00) from holding Australian Strategic Materials or give up 9.09% of portfolio value over 90 days.

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

Iluka Resources Ltd  vs.  Australian Strategic Materials

Iluka Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iluka Resources Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Australian Strategic

Risk-Adjusted Performance

0 of 100

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 nearly stable primary indicators, Australian Strategic is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Iluka Resources and Australian Strategic

The main advantage of trading using opposite Iluka Resources and Australian Strategic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iluka Resources 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 Iluka Resources Ltd 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.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.