Correlation Between Lynas Rare and Elcora Advanced

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

By analyzing existing cross correlation between Lynas Rare Earths and Elcora Advanced Materials, you can compare the effects of market volatilities on Lynas Rare and Elcora Advanced 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 Lynas Rare with a short position of Elcora Advanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lynas Rare and Elcora Advanced.

Diversification Opportunities for Lynas Rare and Elcora Advanced

-0.06

Correlation Coefficient

Lynas Rare  Elcora Advanced

Good diversification

The 3 months correlation between Lynas and Elcora is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Lynas Rare Earths and Elcora Advanced Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elcora Advanced Materials and Lynas Rare 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 Lynas Rare Earths are associated (or correlated) with Elcora Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elcora Advanced Materials has no effect on the direction of Lynas Rare i.e., Lynas Rare and Elcora Advanced go up and down completely randomly.

Pair Corralation between Lynas Rare and Elcora Advanced

Assuming the 90 days horizon Lynas Rare is expected to generate 611.06 times less return on investment than Elcora Advanced. But when comparing it to its historical volatility, Lynas Rare Earths is 144.18 times less risky than Elcora Advanced. It trades about 0.1 of its potential returns per unit of risk. Elcora Advanced Materials is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest  1.19  in Elcora Advanced Materials on December 29, 2024 and sell it today you would earn a total of  7.81  from holding Elcora Advanced Materials or generate 656.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	45.9%
Values	Daily Returns

Lynas Rare Earths  vs.  Elcora Advanced Materials

Lynas Rare Earths

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lynas Rare Earths are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental indicators, Lynas Rare showed solid returns over the last few months and may actually be approaching a breakup point.

Elcora Advanced Materials

Risk-Adjusted Performance

Very Strong

Over the last 90 days Elcora Advanced Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak basic indicators, Elcora Advanced reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lynas Rare and Elcora Advanced

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

The idea behind Lynas Rare Earths and Elcora Advanced 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.