Correlation Between Norra Metals and Avarone Metals

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

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

Diversification Opportunities for Norra Metals and Avarone Metals

-1.0

Correlation Coefficient

Norra Metals  Avarone Metals

Pay attention - limited upside

The 3 months correlation between Norra and Avarone is -1.0. Overlapping area represents the amount of risk that can be diversified away by holding Norra Metals Corp and Avarone Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avarone Metals and Norra Metals 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 Norra Metals Corp are associated (or correlated) with Avarone Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avarone Metals has no effect on the direction of Norra Metals i.e., Norra Metals and Avarone Metals go up and down completely randomly.

Pair Corralation between Norra Metals and Avarone Metals

Assuming the 90 days horizon Norra Metals Corp is expected to generate 5.76 times more return on investment than Avarone Metals. However, Norra Metals is 5.76 times more volatile than Avarone Metals. It trades about 0.07 of its potential returns per unit of risk. Avarone Metals is currently generating about 0.02 per unit of risk. If you would invest  1.50  in Norra Metals Corp on December 2, 2024 and sell it today you would lose (0.50) from holding Norra Metals Corp or give up 33.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Strong
Accuracy	99.0%
Values	Daily Returns

Norra Metals Corp  vs.  Avarone Metals

Norra Metals Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Norra Metals Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Norra Metals is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Avarone Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Avarone Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Avarone Metals is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Norra Metals and Avarone Metals

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

The idea behind Norra Metals Corp and Avarone 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.