Correlation Between Aristocrat Leisure and BG Foods

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

Diversification Opportunities for Aristocrat Leisure and BG Foods

-0.7

Correlation Coefficient

Aristocrat Leisure  BG Foods

Excellent diversification

The 3 months correlation between Aristocrat and DHR is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Aristocrat Leisure Limited and BG Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BG Foods 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 BG Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BG Foods has no effect on the direction of Aristocrat Leisure i.e., Aristocrat Leisure and BG Foods go up and down completely randomly.

Pair Corralation between Aristocrat Leisure and BG Foods

Assuming the 90 days horizon Aristocrat Leisure Limited is expected to generate 0.52 times more return on investment than BG Foods. However, Aristocrat Leisure Limited is 1.93 times less risky than BG Foods. It trades about 0.21 of its potential returns per unit of risk. BG Foods is currently generating about -0.12 per unit of risk. If you would invest  4,100  in Aristocrat Leisure Limited on October 11, 2024 and sell it today you would earn a total of  200.00  from holding Aristocrat Leisure Limited or generate 4.88% return on investment over 90 days.

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

Aristocrat Leisure Limited  vs.  BG Foods

Aristocrat Leisure

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aristocrat Leisure Limited are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Aristocrat Leisure reported solid returns over the last few months and may actually be approaching a breakup point.

BG Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BG Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, BG Foods is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Aristocrat Leisure and BG Foods

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

The idea behind Aristocrat Leisure Limited and BG Foods 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.