Correlation Between ARISTOCRAT LEISURE and Cars

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

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

Diversification Opportunities for ARISTOCRAT LEISURE and Cars

0.93

Correlation Coefficient

ARISTOCRAT LEISURE  Cars

Almost no diversification

The 3 months correlation between ARISTOCRAT and Cars is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding ARISTOCRAT LEISURE and Cars Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cars Inc 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 Cars. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cars Inc has no effect on the direction of ARISTOCRAT LEISURE i.e., ARISTOCRAT LEISURE and Cars go up and down completely randomly.

Pair Corralation between ARISTOCRAT LEISURE and Cars

Assuming the 90 days trading horizon ARISTOCRAT LEISURE is expected to generate 0.38 times more return on investment than Cars. However, ARISTOCRAT LEISURE is 2.61 times less risky than Cars. It trades about 0.14 of its potential returns per unit of risk. Cars Inc is currently generating about 0.03 per unit of risk. If you would invest  1,978  in ARISTOCRAT LEISURE on October 5, 2024 and sell it today you would earn a total of  2,142  from holding ARISTOCRAT LEISURE or generate 108.29% return on investment over 90 days.

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

ARISTOCRAT LEISURE  vs.  Cars Inc

ARISTOCRAT LEISURE

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days ARISTOCRAT LEISURE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively fragile basic indicators, ARISTOCRAT LEISURE unveiled solid returns over the last few months and may actually be approaching a breakup point.

Cars Inc

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Cars Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Cars reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ARISTOCRAT LEISURE and Cars

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

The idea behind ARISTOCRAT LEISURE and Cars Inc 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.

Check out your portfolio center.

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.