Correlation Between Aussie Broadband and Caravel Minerals

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

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

Diversification Opportunities for Aussie Broadband and Caravel Minerals

0.04

Correlation Coefficient

Aussie Broadband  Caravel Minerals

Significant diversification

The 3 months correlation between Aussie and Caravel is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Aussie Broadband and Caravel Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caravel Minerals and Aussie Broadband 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 Aussie Broadband are associated (or correlated) with Caravel Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caravel Minerals has no effect on the direction of Aussie Broadband i.e., Aussie Broadband and Caravel Minerals go up and down completely randomly.

Pair Corralation between Aussie Broadband and Caravel Minerals

Assuming the 90 days trading horizon Aussie Broadband is expected to generate 0.67 times more return on investment than Caravel Minerals. However, Aussie Broadband is 1.49 times less risky than Caravel Minerals. It trades about 0.12 of its potential returns per unit of risk. Caravel Minerals is currently generating about -0.01 per unit of risk. If you would invest  350.00  in Aussie Broadband on December 23, 2024 and sell it today you would earn a total of  49.00  from holding Aussie Broadband or generate 14.0% return on investment over 90 days.

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

Aussie Broadband  vs.  Caravel Minerals

Aussie Broadband

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aussie Broadband are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental drivers, Aussie Broadband unveiled solid returns over the last few months and may actually be approaching a breakup point.

Caravel Minerals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Caravel Minerals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Caravel Minerals 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 Aussie Broadband and Caravel Minerals

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

The idea behind Aussie Broadband and Caravel Minerals 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.