Correlation Between Australian Agricultural and A2 Milk

Can any of the company-specific risk be diversified away by investing in both Australian Agricultural and A2 Milk 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 Agricultural and A2 Milk into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Australian Agricultural and The a2 Milk, you can compare the effects of market volatilities on Australian Agricultural and A2 Milk 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 Agricultural with a short position of A2 Milk. Check out your portfolio center. Please also check ongoing floating volatility patterns of Australian Agricultural and A2 Milk.

Diversification Opportunities for Australian Agricultural and A2 Milk

0.68

Correlation Coefficient

Australian Agricultural  A2 Milk

Poor diversification

The 3 months correlation between Australian and ACOPF is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and The a2 Milk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on a2 Milk and Australian Agricultural 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 Agricultural are associated (or correlated) with A2 Milk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of a2 Milk has no effect on the direction of Australian Agricultural i.e., Australian Agricultural and A2 Milk go up and down completely randomly.

Pair Corralation between Australian Agricultural and A2 Milk

Assuming the 90 days horizon Australian Agricultural is expected to generate 0.38 times more return on investment than A2 Milk. However, Australian Agricultural is 2.6 times less risky than A2 Milk. It trades about 0.01 of its potential returns per unit of risk. The a2 Milk is currently generating about -0.01 per unit of risk. If you would invest  91.00  in Australian Agricultural on September 4, 2024 and sell it today you would earn a total of  0.00  from holding Australian Agricultural or generate 0.0% return on investment over 90 days.

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

Australian Agricultural  vs.  The a2 Milk

Australian Agricultural

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Australian Agricultural has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Australian Agricultural is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

a2 Milk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The a2 Milk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, A2 Milk is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Australian Agricultural and A2 Milk

The main advantage of trading using opposite Australian Agricultural and A2 Milk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Australian Agricultural position performs unexpectedly, A2 Milk 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 A2 Milk will offset losses from the drop in A2 Milk's long position.

The idea behind Australian Agricultural and The a2 Milk 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.