Correlation Between Aristocrat Leisure and VIRGIN WINES

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

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

Diversification Opportunities for Aristocrat Leisure and VIRGIN WINES

0.04

Correlation Coefficient

Aristocrat Leisure  VIRGIN WINES

Significant diversification

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

Pair Corralation between Aristocrat Leisure and VIRGIN WINES

Assuming the 90 days horizon Aristocrat Leisure Limited is expected to generate 0.25 times more return on investment than VIRGIN WINES. However, Aristocrat Leisure Limited is 4.07 times less risky than VIRGIN WINES. It trades about -0.09 of its potential returns per unit of risk. VIRGIN WINES UK is currently generating about -0.1 per unit of risk. If you would invest  4,100  in Aristocrat Leisure Limited on December 22, 2024 and sell it today you would lose (440.00) from holding Aristocrat Leisure Limited or give up 10.73% of portfolio value over 90 days.

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

Aristocrat Leisure Limited  vs.  VIRGIN WINES UK

Aristocrat Leisure

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aristocrat Leisure Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

VIRGIN WINES UK

Risk-Adjusted Performance

Very Weak

Over the last 90 days VIRGIN WINES UK has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Aristocrat Leisure and VIRGIN WINES

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

The idea behind Aristocrat Leisure Limited and VIRGIN WINES UK 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.