Correlation Between Australian Strategic and Brickworks

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

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

Diversification Opportunities for Australian Strategic and Brickworks

0.7

Correlation Coefficient

Australian Strategic  Brickworks

Poor diversification

The 3 months correlation between Australian and Brickworks is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Australian Strategic Materials and Brickworks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brickworks and Australian Strategic 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 Strategic Materials are associated (or correlated) with Brickworks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brickworks has no effect on the direction of Australian Strategic i.e., Australian Strategic and Brickworks go up and down completely randomly.

Pair Corralation between Australian Strategic and Brickworks

Assuming the 90 days trading horizon Australian Strategic Materials is expected to generate 4.14 times more return on investment than Brickworks. However, Australian Strategic is 4.14 times more volatile than Brickworks. It trades about 0.22 of its potential returns per unit of risk. Brickworks is currently generating about -0.22 per unit of risk. If you would invest  47.00  in Australian Strategic Materials on October 4, 2024 and sell it today you would earn a total of  6.00  from holding Australian Strategic Materials or generate 12.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Australian Strategic Materials  vs.  Brickworks

Australian Strategic

Risk-Adjusted Performance

0 of 100

Very Weak

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

Brickworks

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Australian Strategic and Brickworks

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

The idea behind Australian Strategic Materials and Brickworks 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.