Correlation Between Australian Dairy and Caravel Minerals

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

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

Diversification Opportunities for Australian Dairy and Caravel Minerals

0.7

Correlation Coefficient

Australian Dairy  Caravel Minerals

Poor diversification

The 3 months correlation between Australian and Caravel is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Australian Dairy Farms and Caravel Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caravel Minerals and Australian Dairy 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 Dairy Farms are associated (or correlated) with Caravel Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caravel Minerals has no effect on the direction of Australian Dairy i.e., Australian Dairy and Caravel Minerals go up and down completely randomly.

Pair Corralation between Australian Dairy and Caravel Minerals

Assuming the 90 days trading horizon Australian Dairy Farms is expected to generate 4.23 times more return on investment than Caravel Minerals. However, Australian Dairy is 4.23 times more volatile than Caravel Minerals. It trades about 0.33 of its potential returns per unit of risk. Caravel Minerals is currently generating about 0.11 per unit of risk. If you would invest  2.80  in Australian Dairy Farms on September 23, 2024 and sell it today you would earn a total of  2.50  from holding Australian Dairy Farms or generate 89.29% return on investment over 90 days.

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

Australian Dairy Farms  vs.  Caravel Minerals

Australian Dairy Farms

Risk-Adjusted Performance

20 of 100

Solid

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

Caravel Minerals

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Caravel Minerals are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Caravel Minerals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Australian Dairy and Caravel Minerals

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

The idea behind Australian Dairy Farms and Caravel Minerals 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.