Correlation Between Regulus Resources and Arafura Resources

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

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

Diversification Opportunities for Regulus Resources and Arafura Resources

0.19

Correlation Coefficient

Regulus Resources  Arafura Resources

Average diversification

The 3 months correlation between Regulus and Arafura is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Regulus Resources and Arafura Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arafura Resources and Regulus Resources 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 Regulus Resources are associated (or correlated) with Arafura Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arafura Resources has no effect on the direction of Regulus Resources i.e., Regulus Resources and Arafura Resources go up and down completely randomly.

Pair Corralation between Regulus Resources and Arafura Resources

Assuming the 90 days horizon Regulus Resources is expected to generate 4.87 times less return on investment than Arafura Resources. But when comparing it to its historical volatility, Regulus Resources is 3.97 times less risky than Arafura Resources. It trades about 0.11 of its potential returns per unit of risk. Arafura Resources is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  7.20  in Arafura Resources on December 30, 2024 and sell it today you would earn a total of  4.80  from holding Arafura Resources or generate 66.67% return on investment over 90 days.

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

Regulus Resources  vs.  Arafura Resources

Regulus Resources

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Regulus Resources are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Regulus Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Arafura Resources

Risk-Adjusted Performance

OK

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

Pair Trading with Regulus Resources and Arafura Resources

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

The idea behind Regulus Resources and Arafura 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.