Correlation Between Metals X and Texas Rare

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

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

Diversification Opportunities for Metals X and Texas Rare

0.54

Correlation Coefficient

Metals X  Texas Rare

Very weak diversification

The 3 months correlation between Metals and Texas is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Metals X Limited and Texas Rare Earth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Rare Earth and Metals X 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 Metals X Limited are associated (or correlated) with Texas Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Rare Earth has no effect on the direction of Metals X i.e., Metals X and Texas Rare go up and down completely randomly.

Pair Corralation between Metals X and Texas Rare

Assuming the 90 days horizon Metals X is expected to generate 1.41 times less return on investment than Texas Rare. But when comparing it to its historical volatility, Metals X Limited is 1.41 times less risky than Texas Rare. It trades about 0.16 of its potential returns per unit of risk. Texas Rare Earth is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  25.00  in Texas Rare Earth on November 30, 2024 and sell it today you would earn a total of  13.00  from holding Texas Rare Earth or generate 52.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.62%
Values	Daily Returns

Metals X Limited  vs.  Texas Rare Earth

Metals X Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Metals X Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Metals X reported solid returns over the last few months and may actually be approaching a breakup point.

Texas Rare Earth

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Rare Earth are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Texas Rare exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metals X and Texas Rare

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

The idea behind Metals X Limited and Texas Rare Earth 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.