Correlation Between Alumina and EQ Resources

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

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

Diversification Opportunities for Alumina and EQ Resources

0.01

Correlation Coefficient

Alumina  EQ Resources

Significant diversification

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

Pair Corralation between Alumina and EQ Resources

Assuming the 90 days trading horizon Alumina is expected to generate 0.79 times more return on investment than EQ Resources. However, Alumina is 1.27 times less risky than EQ Resources. It trades about 0.05 of its potential returns per unit of risk. EQ Resources is currently generating about -0.02 per unit of risk. If you would invest  141.00  in Alumina on March 7, 2024 and sell it today you would earn a total of  46.00  from holding Alumina or generate 32.62% return on investment over 90 days.

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

Alumina  vs.  EQ Resources

Alumina

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alumina are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Alumina unveiled solid returns over the last few months and may actually be approaching a breakup point.

EQ Resources

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Alumina and EQ Resources

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

The idea behind Alumina and EQ 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.