Correlation Between Australian High and VanEck FTSE

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

By analyzing existing cross correlation between Australian High Interest and VanEck FTSE China, you can compare the effects of market volatilities on Australian High and VanEck FTSE 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 High with a short position of VanEck FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Australian High and VanEck FTSE.

Diversification Opportunities for Australian High and VanEck FTSE

0.4

Correlation Coefficient

Australian High  VanEck FTSE

Very weak diversification

The 3 months correlation between Australian and VanEck is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Australian High Interest and VanEck FTSE China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck FTSE China and Australian High 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 High Interest are associated (or correlated) with VanEck FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck FTSE China has no effect on the direction of Australian High i.e., Australian High and VanEck FTSE go up and down completely randomly.

Pair Corralation between Australian High and VanEck FTSE

Assuming the 90 days trading horizon Australian High Interest is expected to generate 0.02 times more return on investment than VanEck FTSE. However, Australian High Interest is 50.24 times less risky than VanEck FTSE. It trades about 0.77 of its potential returns per unit of risk. VanEck FTSE China is currently generating about -0.01 per unit of risk. If you would invest  4,974  in Australian High Interest on December 29, 2024 and sell it today you would earn a total of  53.00  from holding Australian High Interest or generate 1.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Australian High Interest  vs.  VanEck FTSE China

Australian High Interest

Risk-Adjusted Performance

Market Crasher

Compared to the overall equity markets, risk-adjusted returns on investments in Australian High Interest are ranked lower than 60 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Australian High is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

VanEck FTSE China

Risk-Adjusted Performance

Very Weak

Over the last 90 days VanEck FTSE China has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, VanEck FTSE 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 Australian High and VanEck FTSE

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

The idea behind Australian High Interest and VanEck FTSE China 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.