Correlation Between Australian Agricultural and Aristocrat Leisure

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

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

Diversification Opportunities for Australian Agricultural and Aristocrat Leisure

-0.61

Correlation Coefficient

Australian Agricultural  Aristocrat Leisure

Excellent diversification

The 3 months correlation between Australian and Aristocrat is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and Aristocrat Leisure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aristocrat Leisure and Australian Agricultural 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 Agricultural are associated (or correlated) with Aristocrat Leisure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aristocrat Leisure has no effect on the direction of Australian Agricultural i.e., Australian Agricultural and Aristocrat Leisure go up and down completely randomly.

Pair Corralation between Australian Agricultural and Aristocrat Leisure

Assuming the 90 days trading horizon Australian Agricultural is expected to under-perform the Aristocrat Leisure. But the stock apears to be less risky and, when comparing its historical volatility, Australian Agricultural is 1.04 times less risky than Aristocrat Leisure. The stock trades about -0.06 of its potential returns per unit of risk. The Aristocrat Leisure is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  6,194  in Aristocrat Leisure on September 3, 2024 and sell it today you would earn a total of  581.00  from holding Aristocrat Leisure or generate 9.38% return on investment over 90 days.

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

Australian Agricultural  vs.  Aristocrat Leisure

Australian Agricultural

Risk-Adjusted Performance

0 of 100

Very Weak

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

Aristocrat Leisure

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aristocrat Leisure are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak essential indicators, Aristocrat Leisure unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Australian Agricultural and Aristocrat Leisure

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

The idea behind Australian Agricultural and Aristocrat Leisure 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.

Check out your portfolio center.

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.