Correlation Between ARISTOCRAT LEISURE and Collins Foods

Can any of the company-specific risk be diversified away by investing in both ARISTOCRAT LEISURE and Collins 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 Collins Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ARISTOCRAT LEISURE and Collins Foods Limited, you can compare the effects of market volatilities on ARISTOCRAT LEISURE and Collins 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 Collins Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARISTOCRAT LEISURE and Collins Foods.

Diversification Opportunities for ARISTOCRAT LEISURE and Collins Foods

0.2

Correlation Coefficient

ARISTOCRAT LEISURE  Collins Foods

Modest diversification

The 3 months correlation between ARISTOCRAT and Collins is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding ARISTOCRAT LEISURE and Collins Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Collins Foods 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 are associated (or correlated) with Collins Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Collins Foods Limited has no effect on the direction of ARISTOCRAT LEISURE i.e., ARISTOCRAT LEISURE and Collins Foods go up and down completely randomly.

Pair Corralation between ARISTOCRAT LEISURE and Collins Foods

Assuming the 90 days trading horizon ARISTOCRAT LEISURE is expected to generate 0.65 times more return on investment than Collins Foods. However, ARISTOCRAT LEISURE is 1.54 times less risky than Collins Foods. It trades about 0.06 of its potential returns per unit of risk. Collins Foods Limited is currently generating about -0.02 per unit of risk. If you would invest  4,140  in ARISTOCRAT LEISURE on December 1, 2024 and sell it today you would earn a total of  180.00  from holding ARISTOCRAT LEISURE or generate 4.35% return on investment over 90 days.

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

ARISTOCRAT LEISURE  vs.  Collins Foods Limited

ARISTOCRAT LEISURE

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ARISTOCRAT LEISURE are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, ARISTOCRAT LEISURE is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Collins Foods Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Collins Foods Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Collins Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with ARISTOCRAT LEISURE and Collins Foods

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

The idea behind ARISTOCRAT LEISURE and Collins Foods 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 Global Correlations module to find global opportunities by holding instruments from different markets.