Correlation Between Australian Unity and Woolworths

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

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

Diversification Opportunities for Australian Unity and Woolworths

0.56

Correlation Coefficient

Australian Unity  Woolworths

Very weak diversification

The 3 months correlation between Australian and Woolworths is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Australian Unity Office and Woolworths in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woolworths and Australian Unity 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 Unity Office are associated (or correlated) with Woolworths. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woolworths has no effect on the direction of Australian Unity i.e., Australian Unity and Woolworths go up and down completely randomly.

Pair Corralation between Australian Unity and Woolworths

Assuming the 90 days trading horizon Australian Unity Office is expected to generate 0.78 times more return on investment than Woolworths. However, Australian Unity Office is 1.27 times less risky than Woolworths. It trades about -0.13 of its potential returns per unit of risk. Woolworths is currently generating about -0.17 per unit of risk. If you would invest  114.00  in Australian Unity Office on September 13, 2024 and sell it today you would lose (9.00) from holding Australian Unity Office or give up 7.89% of portfolio value over 90 days.

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

Australian Unity Office  vs.  Woolworths

Australian Unity Office

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Australian Unity Office has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Woolworths

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Woolworths has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Australian Unity and Woolworths

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

The idea behind Australian Unity Office and Woolworths 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.