Correlation Between Australian Foundation and BKI Investment

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

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

Diversification Opportunities for Australian Foundation and BKI Investment

0.61

Correlation Coefficient

Australian Foundation  BKI Investment

Poor diversification

The 3 months correlation between Australian and BKI is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Australian Foundation Investme and BKI Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BKI Investment and Australian Foundation 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 Australian Foundation Investment are associated (or correlated) with BKI Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BKI Investment has no effect on the direction of Australian Foundation i.e., Australian Foundation and BKI Investment go up and down completely randomly.

Pair Corralation between Australian Foundation and BKI Investment

Assuming the 90 days trading horizon Australian Foundation Investment is expected to under-perform the BKI Investment. But the stock apears to be less risky and, when comparing its historical volatility, Australian Foundation Investment is 1.63 times less risky than BKI Investment. The stock trades about -0.02 of its potential returns per unit of risk. The BKI Investment is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  166.00  in BKI Investment on December 30, 2024 and sell it today you would lose (1.00) from holding BKI Investment or give up 0.6% of portfolio value over 90 days.

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

Australian Foundation Investme  vs.  BKI Investment

Australian Foundation

Risk-Adjusted Performance

Very Weak

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

BKI Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days BKI Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, BKI Investment 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 Australian Foundation and BKI Investment

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

The idea behind Australian Foundation Investment and BKI Investment 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.