Correlation Between Aristocrat Leisure and Red Hill

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

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

Diversification Opportunities for Aristocrat Leisure and Red Hill

0.87

Correlation Coefficient

Aristocrat Leisure  Red Hill

Very poor diversification

The 3 months correlation between Aristocrat and Red is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Aristocrat Leisure and Red Hill Iron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Hill Iron 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 Red Hill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Hill Iron has no effect on the direction of Aristocrat Leisure i.e., Aristocrat Leisure and Red Hill go up and down completely randomly.

Pair Corralation between Aristocrat Leisure and Red Hill

Assuming the 90 days trading horizon Aristocrat Leisure is expected to generate 0.52 times more return on investment than Red Hill. However, Aristocrat Leisure is 1.92 times less risky than Red Hill. It trades about 0.11 of its potential returns per unit of risk. Red Hill Iron is currently generating about 0.03 per unit of risk. If you would invest  3,229  in Aristocrat Leisure on October 5, 2024 and sell it today you would earn a total of  3,634  from holding Aristocrat Leisure or generate 112.54% 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.  Red Hill Iron

Aristocrat Leisure

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aristocrat Leisure are ranked lower than 18 (%) 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.

Red Hill Iron

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Aristocrat Leisure and Red Hill

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

The idea behind Aristocrat Leisure and Red Hill Iron 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.