Correlation Between Red Hill and Asara Resources

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

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

Diversification Opportunities for Red Hill and Asara Resources

0.84

Correlation Coefficient

Red Hill  Asara Resources

Very poor diversification

The 3 months correlation between Red and Asara is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Red Hill Iron and Asara Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asara Resources and Red Hill 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 Red Hill Iron are associated (or correlated) with Asara Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asara Resources has no effect on the direction of Red Hill i.e., Red Hill and Asara Resources go up and down completely randomly.

Pair Corralation between Red Hill and Asara Resources

Assuming the 90 days trading horizon Red Hill is expected to generate 3.92 times less return on investment than Asara Resources. But when comparing it to its historical volatility, Red Hill Iron is 2.12 times less risky than Asara Resources. It trades about 0.11 of its potential returns per unit of risk. Asara Resources is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1.10  in Asara Resources on August 31, 2024 and sell it today you would earn a total of  1.20  from holding Asara Resources or generate 109.09% return on investment over 90 days.

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

Red Hill Iron  vs.  Asara Resources

Red Hill Iron

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Red Hill Iron are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Red Hill unveiled solid returns over the last few months and may actually be approaching a breakup point.

Asara Resources

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Asara Resources are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Asara Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Red Hill and Asara Resources

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

The idea behind Red Hill Iron and Asara 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.