Correlation Between National Australia and Hastings Rare

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

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

Diversification Opportunities for National Australia and Hastings Rare

0.38

Correlation Coefficient

National Australia  Hastings Rare

Weak diversification

The 3 months correlation between National and Hastings is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding National Australia Bank and Hastings Rare Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hastings Rare Metals and National Australia 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 National Australia Bank are associated (or correlated) with Hastings Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hastings Rare Metals has no effect on the direction of National Australia i.e., National Australia and Hastings Rare go up and down completely randomly.

Pair Corralation between National Australia and Hastings Rare

Assuming the 90 days trading horizon National Australia is expected to generate 27.4 times less return on investment than Hastings Rare. But when comparing it to its historical volatility, National Australia Bank is 15.69 times less risky than Hastings Rare. It trades about 0.03 of its potential returns per unit of risk. Hastings Rare Metals is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  33.00  in Hastings Rare Metals on October 11, 2024 and sell it today you would earn a total of  1.00  from holding Hastings Rare Metals or generate 3.03% return on investment over 90 days.

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

National Australia Bank  vs.  Hastings Rare Metals

National Australia Bank

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days National Australia Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, National Australia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hastings Rare Metals

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hastings Rare Metals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Hastings Rare unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Australia and Hastings Rare

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

The idea behind National Australia Bank and Hastings Rare 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.