Correlation Between Northern Graphite and Pilbara Minerals

Can any of the company-specific risk be diversified away by investing in both Northern Graphite and Pilbara Minerals 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 Northern Graphite and Pilbara Minerals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Northern Graphite and Pilbara Minerals Limited, you can compare the effects of market volatilities on Northern Graphite and Pilbara Minerals 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 Northern Graphite with a short position of Pilbara Minerals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Graphite and Pilbara Minerals.

Diversification Opportunities for Northern Graphite and Pilbara Minerals

-0.76

Correlation Coefficient

Northern Graphite  Pilbara Minerals

Pay attention - limited upside

The 3 months correlation between Northern and Pilbara is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Northern Graphite and Pilbara Minerals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pilbara Minerals and Northern Graphite 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 Northern Graphite are associated (or correlated) with Pilbara Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pilbara Minerals has no effect on the direction of Northern Graphite i.e., Northern Graphite and Pilbara Minerals go up and down completely randomly.

Pair Corralation between Northern Graphite and Pilbara Minerals

Assuming the 90 days horizon Northern Graphite is expected to generate 2.1 times more return on investment than Pilbara Minerals. However, Northern Graphite is 2.1 times more volatile than Pilbara Minerals Limited. It trades about -0.01 of its potential returns per unit of risk. Pilbara Minerals Limited is currently generating about -0.02 per unit of risk. If you would invest  45.00  in Northern Graphite on October 5, 2024 and sell it today you would lose (35.70) from holding Northern Graphite or give up 79.33% of portfolio value over 90 days.

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

Northern Graphite  vs.  Pilbara Minerals Limited

Northern Graphite

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Graphite are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, Northern Graphite reported solid returns over the last few months and may actually be approaching a breakup point.

Pilbara Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pilbara Minerals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Northern Graphite and Pilbara Minerals

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

The idea behind Northern Graphite and Pilbara Minerals Limited 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.