Correlation Between Australian Agricultural and Wilmar International

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

By analyzing existing cross correlation between Australian Agricultural and Wilmar International, you can compare the effects of market volatilities on Australian Agricultural and Wilmar International 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 Wilmar International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Australian Agricultural and Wilmar International.

Diversification Opportunities for Australian Agricultural and Wilmar International

0.69

Correlation Coefficient

Australian Agricultural  Wilmar International

Poor diversification

The 3 months correlation between Australian and Wilmar is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and Wilmar International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wilmar International 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 Wilmar International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wilmar International has no effect on the direction of Australian Agricultural i.e., Australian Agricultural and Wilmar International go up and down completely randomly.

Pair Corralation between Australian Agricultural and Wilmar International

Assuming the 90 days horizon Australian Agricultural is expected to under-perform the Wilmar International. But the pink sheet apears to be less risky and, when comparing its historical volatility, Australian Agricultural is 1.25 times less risky than Wilmar International. The pink sheet trades about -0.05 of its potential returns per unit of risk. The Wilmar International is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,426  in Wilmar International on September 5, 2024 and sell it today you would lose (84.00) from holding Wilmar International or give up 3.46% of portfolio value over 90 days.

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

Australian Agricultural  vs.  Wilmar International

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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Wilmar International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wilmar International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, Wilmar International is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Australian Agricultural and Wilmar International

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

The idea behind Australian Agricultural and Wilmar International 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.