Correlation Between Aeris Environmental and Aristocrat Leisure

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

By analyzing existing cross correlation between Aeris Environmental and Aristocrat Leisure, you can compare the effects of market volatilities on Aeris Environmental and Aristocrat Leisure 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 Aeris Environmental with a short position of Aristocrat Leisure. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aeris Environmental and Aristocrat Leisure.

Diversification Opportunities for Aeris Environmental and Aristocrat Leisure

0.28

Correlation Coefficient

Aeris Environmental  Aristocrat Leisure

Modest diversification

The 3 months correlation between Aeris and Aristocrat is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Aeris Environmental and Aristocrat Leisure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aristocrat Leisure and Aeris Environmental 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 Aeris Environmental are associated (or correlated) with Aristocrat Leisure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aristocrat Leisure has no effect on the direction of Aeris Environmental i.e., Aeris Environmental and Aristocrat Leisure go up and down completely randomly.

Pair Corralation between Aeris Environmental and Aristocrat Leisure

Assuming the 90 days trading horizon Aeris Environmental is expected to under-perform the Aristocrat Leisure. In addition to that, Aeris Environmental is 2.48 times more volatile than Aristocrat Leisure. It trades about -0.06 of its total potential returns per unit of risk. Aristocrat Leisure is currently generating about 0.14 per unit of volatility. If you would invest  6,520  in Aristocrat Leisure on September 12, 2024 and sell it today you would earn a total of  270.00  from holding Aristocrat Leisure or generate 4.14% return on investment over 90 days.

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

Aeris Environmental  vs.  Aristocrat Leisure

Aeris Environmental

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aeris Environmental are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Aeris Environmental unveiled solid returns over the last few months and may actually be approaching a breakup point.

Aristocrat Leisure

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aristocrat Leisure are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, Aristocrat Leisure unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aeris Environmental and Aristocrat Leisure

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

The idea behind Aeris Environmental and Aristocrat Leisure 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.