Correlation Between Northern Star and Iluka Resources

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

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

Diversification Opportunities for Northern Star and Iluka Resources

0.16

Correlation Coefficient

Northern Star  Iluka Resources

Average diversification

The 3 months correlation between Northern and Iluka is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Northern Star Resources and Iluka Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iluka Resources and Northern Star 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 Star Resources are associated (or correlated) with Iluka Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iluka Resources has no effect on the direction of Northern Star i.e., Northern Star and Iluka Resources go up and down completely randomly.

Pair Corralation between Northern Star and Iluka Resources

Assuming the 90 days trading horizon Northern Star Resources is expected to generate 0.97 times more return on investment than Iluka Resources. However, Northern Star Resources is 1.03 times less risky than Iluka Resources. It trades about 0.01 of its potential returns per unit of risk. Iluka Resources is currently generating about -0.17 per unit of risk. If you would invest  1,584  in Northern Star Resources on October 6, 2024 and sell it today you would lose (8.00) from holding Northern Star Resources or give up 0.51% of portfolio value over 90 days.

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

Northern Star Resources  vs.  Iluka Resources

Northern Star Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Star Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Northern Star is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Iluka Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iluka Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Northern Star and Iluka Resources

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

The idea behind Northern Star Resources and Iluka Resources 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 Anywhere module to track or share privately all of your investments from the convenience of any device.