Correlation Between Vulcan Minerals and Pilbara Minerals

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

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

Diversification Opportunities for Vulcan Minerals and Pilbara Minerals

0.22

Correlation Coefficient

Vulcan Minerals  Pilbara Minerals

Modest diversification

The 3 months correlation between Vulcan and Pilbara is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Minerals and Pilbara Minerals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pilbara Minerals and Vulcan Minerals 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 Vulcan Minerals 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 Vulcan Minerals i.e., Vulcan Minerals and Pilbara Minerals go up and down completely randomly.

Pair Corralation between Vulcan Minerals and Pilbara Minerals

Assuming the 90 days horizon Vulcan Minerals is expected to generate 13.88 times more return on investment than Pilbara Minerals. However, Vulcan Minerals is 13.88 times more volatile than Pilbara Minerals Limited. It trades about 0.05 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  28.00  in Vulcan Minerals on October 5, 2024 and sell it today you would lose (22.50) from holding Vulcan Minerals or give up 80.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Vulcan Minerals  vs.  Pilbara Minerals Limited

Vulcan Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 Vulcan Minerals and Pilbara Minerals

The main advantage of trading using opposite Vulcan Minerals and Pilbara Minerals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vulcan Minerals 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 Vulcan Minerals 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.