Correlation Between Australian Mines and Strategic Resources

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

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

Diversification Opportunities for Australian Mines and Strategic Resources

0.01

Correlation Coefficient

Australian Mines  Strategic Resources

Significant diversification

The 3 months correlation between Australian and Strategic is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Australian Mines Limited and Strategic Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Resources and Australian Mines 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 Australian Mines Limited are associated (or correlated) with Strategic Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Resources has no effect on the direction of Australian Mines i.e., Australian Mines and Strategic Resources go up and down completely randomly.

Pair Corralation between Australian Mines and Strategic Resources

Assuming the 90 days horizon Australian Mines Limited is expected to generate 6.42 times more return on investment than Strategic Resources. However, Australian Mines is 6.42 times more volatile than Strategic Resources. It trades about 0.14 of its potential returns per unit of risk. Strategic Resources is currently generating about -0.12 per unit of risk. If you would invest  1.10  in Australian Mines Limited on February 23, 2024 and sell it today you would lose (0.36) from holding Australian Mines Limited or give up 32.73% of portfolio value over 90 days.

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

Australian Mines Limited  vs.  Strategic Resources

Australian Mines

Risk-Adjusted Performance

10 of 100

OK

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

Strategic Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Strategic Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Australian Mines and Strategic Resources

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

The idea behind Australian Mines Limited and Strategic 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.