Correlation Between Aristocrat Leisure and Sea

Can any of the company-specific risk be diversified away by investing in both Aristocrat Leisure and Sea 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 Sea 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 Sea Limited, you can compare the effects of market volatilities on Aristocrat Leisure and Sea 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 Sea. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aristocrat Leisure and Sea.

Diversification Opportunities for Aristocrat Leisure and Sea

0.48

Correlation Coefficient

Aristocrat Leisure  Sea

Very weak diversification

The 3 months correlation between Aristocrat and Sea is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Aristocrat Leisure Limited and Sea Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea Limited 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 Sea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea Limited has no effect on the direction of Aristocrat Leisure i.e., Aristocrat Leisure and Sea go up and down completely randomly.

Pair Corralation between Aristocrat Leisure and Sea

Assuming the 90 days horizon Aristocrat Leisure Limited is expected to under-perform the Sea. But the stock apears to be less risky and, when comparing its historical volatility, Aristocrat Leisure Limited is 1.38 times less risky than Sea. The stock trades about -0.09 of its potential returns per unit of risk. The Sea Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  10,460  in Sea Limited on December 22, 2024 and sell it today you would earn a total of  1,060  from holding Sea Limited or generate 10.13% return on investment over 90 days.

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

Aristocrat Leisure Limited  vs.  Sea Limited

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.

Sea Limited

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sea Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sea may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Aristocrat Leisure and Sea

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

The idea behind Aristocrat Leisure Limited and Sea Limited 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.