Correlation Between Iluka Resources and Aurelia Metals

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

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

Diversification Opportunities for Iluka Resources and Aurelia Metals

0.2

Correlation Coefficient

Iluka Resources  Aurelia Metals

Modest diversification

The 3 months correlation between Iluka and Aurelia is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Iluka Resources and Aurelia Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurelia Metals 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 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 Iluka Resources i.e., Iluka Resources and Aurelia Metals go up and down completely randomly.

Pair Corralation between Iluka Resources and Aurelia Metals

Assuming the 90 days trading horizon Iluka Resources is expected to under-perform the Aurelia Metals. But the stock apears to be less risky and, when comparing its historical volatility, Iluka Resources is 1.81 times less risky than Aurelia Metals. The stock trades about -0.07 of its potential returns per unit of risk. The Aurelia Metals is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  16.00  in Aurelia Metals on September 15, 2024 and sell it today you would earn a total of  2.00  from holding Aurelia Metals or generate 12.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Iluka Resources  vs.  Aurelia Metals

Iluka Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iluka Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Aurelia Metals

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aurelia Metals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Aurelia Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Iluka Resources and Aurelia Metals

The main advantage of trading using opposite Iluka Resources and Aurelia Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iluka Resources 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 Iluka Resources and Aurelia Metals 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.