Correlation Between ARISTOCRAT LEISURE and YAMAHA MOTOR

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

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

Diversification Opportunities for ARISTOCRAT LEISURE and YAMAHA MOTOR

0.6

Correlation Coefficient

ARISTOCRAT LEISURE  YAMAHA MOTOR

Poor diversification

The 3 months correlation between ARISTOCRAT and YAMAHA is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding ARISTOCRAT LEISURE and YAMAHA MOTOR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on YAMAHA MOTOR 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 YAMAHA MOTOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of YAMAHA MOTOR has no effect on the direction of ARISTOCRAT LEISURE i.e., ARISTOCRAT LEISURE and YAMAHA MOTOR go up and down completely randomly.

Pair Corralation between ARISTOCRAT LEISURE and YAMAHA MOTOR

Assuming the 90 days trading horizon ARISTOCRAT LEISURE is expected to generate 0.75 times more return on investment than YAMAHA MOTOR. However, ARISTOCRAT LEISURE is 1.34 times less risky than YAMAHA MOTOR. It trades about 0.2 of its potential returns per unit of risk. YAMAHA MOTOR is currently generating about -0.01 per unit of risk. If you would invest  4,160  in ARISTOCRAT LEISURE on October 9, 2024 and sell it today you would earn a total of  140.00  from holding ARISTOCRAT LEISURE or generate 3.37% return on investment over 90 days.

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

ARISTOCRAT LEISURE  vs.  YAMAHA MOTOR

ARISTOCRAT LEISURE

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ARISTOCRAT LEISURE are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, ARISTOCRAT LEISURE unveiled solid returns over the last few months and may actually be approaching a breakup point.

YAMAHA MOTOR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days YAMAHA MOTOR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, YAMAHA MOTOR is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with ARISTOCRAT LEISURE and YAMAHA MOTOR

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

The idea behind ARISTOCRAT LEISURE and YAMAHA MOTOR 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.