Correlation Between Aristocrat Leisure and MFF Capital

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

By analyzing existing cross correlation between Aristocrat Leisure and MFF Capital Investments, you can compare the effects of market volatilities on Aristocrat Leisure and MFF Capital 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 MFF Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aristocrat Leisure and MFF Capital.

Diversification Opportunities for Aristocrat Leisure and MFF Capital

0.89

Correlation Coefficient

Aristocrat Leisure  MFF Capital

Very poor diversification

The 3 months correlation between Aristocrat and MFF is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Aristocrat Leisure and MFF Capital Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFF Capital Investments 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 MFF Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MFF Capital Investments has no effect on the direction of Aristocrat Leisure i.e., Aristocrat Leisure and MFF Capital go up and down completely randomly.

Pair Corralation between Aristocrat Leisure and MFF Capital

Assuming the 90 days trading horizon Aristocrat Leisure is expected to under-perform the MFF Capital. In addition to that, Aristocrat Leisure is 1.46 times more volatile than MFF Capital Investments. It trades about -0.12 of its total potential returns per unit of risk. MFF Capital Investments is currently generating about 0.11 per unit of volatility. If you would invest  469.00  in MFF Capital Investments on October 26, 2024 and sell it today you would earn a total of  7.00  from holding MFF Capital Investments or generate 1.49% return on investment over 90 days.

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

Aristocrat Leisure  vs.  MFF Capital Investments

Aristocrat Leisure

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aristocrat Leisure are ranked lower than 14 (%) 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.

MFF Capital Investments

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MFF Capital Investments are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, MFF Capital unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aristocrat Leisure and MFF Capital

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

The idea behind Aristocrat Leisure and MFF Capital Investments 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.