Correlation Between Australian Agricultural and EP Financial

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

By analyzing existing cross correlation between Australian Agricultural and EP Financial Group, you can compare the effects of market volatilities on Australian Agricultural and EP Financial 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 EP Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Australian Agricultural and EP Financial.

Diversification Opportunities for Australian Agricultural and EP Financial

-0.18

Correlation Coefficient

Australian Agricultural  EP Financial

Good diversification

The 3 months correlation between Australian and EP1 is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and EP Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EP Financial Group 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 EP Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EP Financial Group has no effect on the direction of Australian Agricultural i.e., Australian Agricultural and EP Financial go up and down completely randomly.

Pair Corralation between Australian Agricultural and EP Financial

Assuming the 90 days trading horizon Australian Agricultural is expected to generate 0.48 times more return on investment than EP Financial. However, Australian Agricultural is 2.1 times less risky than EP Financial. It trades about 0.1 of its potential returns per unit of risk. EP Financial Group is currently generating about -0.03 per unit of risk. If you would invest  135.00  in Australian Agricultural on September 19, 2024 and sell it today you would earn a total of  3.00  from holding Australian Agricultural or generate 2.22% return on investment over 90 days.

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

Australian Agricultural  vs.  EP Financial Group

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.

EP Financial Group

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EP Financial Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, EP Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Australian Agricultural and EP Financial

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

The idea behind Australian Agricultural and EP Financial Group 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.