Correlation Between Australian Strategic and Challenger

Can any of the company-specific risk be diversified away by investing in both Australian Strategic and Challenger 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 Challenger 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 Challenger, you can compare the effects of market volatilities on Australian Strategic and Challenger 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 Challenger. Check out your portfolio center. Please also check ongoing floating volatility patterns of Australian Strategic and Challenger.

Diversification Opportunities for Australian Strategic and Challenger

0.47

Correlation Coefficient

Australian Strategic  Challenger

Very weak diversification

The 3 months correlation between Australian and Challenger is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Australian Strategic Materials and Challenger in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Challenger 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 Challenger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Challenger has no effect on the direction of Australian Strategic i.e., Australian Strategic and Challenger go up and down completely randomly.

Pair Corralation between Australian Strategic and Challenger

Assuming the 90 days trading horizon Australian Strategic Materials is expected to under-perform the Challenger. In addition to that, Australian Strategic is 1.07 times more volatile than Challenger. It trades about -0.34 of its total potential returns per unit of risk. Challenger is currently generating about -0.12 per unit of volatility. If you would invest  596.00  in Challenger on December 10, 2024 and sell it today you would lose (46.00) from holding Challenger or give up 7.72% of portfolio value over 90 days.

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

Australian Strategic Materials  vs.  Challenger

Australian Strategic

Risk-Adjusted Performance

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 uncertain performance in the last few months, the Stock's primary indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Challenger

Risk-Adjusted Performance

Very Weak

Over the last 90 days Challenger has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Challenger is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Australian Strategic and Challenger

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

The idea behind Australian Strategic Materials and Challenger 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.