Correlation Between Austral Gold and China Merchants

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

By analyzing existing cross correlation between Austral Gold Limited and China Merchants Port, you can compare the effects of market volatilities on Austral Gold and China Merchants 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 Austral Gold with a short position of China Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Austral Gold and China Merchants.

Diversification Opportunities for Austral Gold and China Merchants

-0.39

Correlation Coefficient

Austral Gold  China Merchants

Very good diversification

The 3 months correlation between Austral and China is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Austral Gold Limited and China Merchants Port in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Port and Austral Gold 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 Austral Gold Limited are associated (or correlated) with China Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Merchants Port has no effect on the direction of Austral Gold i.e., Austral Gold and China Merchants go up and down completely randomly.

Pair Corralation between Austral Gold and China Merchants

Assuming the 90 days horizon Austral Gold Limited is expected to generate 29.67 times more return on investment than China Merchants. However, Austral Gold is 29.67 times more volatile than China Merchants Port. It trades about 0.09 of its potential returns per unit of risk. China Merchants Port is currently generating about -0.29 per unit of risk. If you would invest  2.06  in Austral Gold Limited on September 25, 2024 and sell it today you would lose (0.10) from holding Austral Gold Limited or give up 4.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.91%
Values	Daily Returns

Austral Gold Limited  vs.  China Merchants Port

Austral Gold Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Austral Gold Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Austral Gold reported solid returns over the last few months and may actually be approaching a breakup point.

China Merchants Port

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Port are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, China Merchants is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Austral Gold and China Merchants

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

The idea behind Austral Gold Limited and China Merchants Port 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.