Correlation Between Australian Strategic and Health

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

Diversification Opportunities for Australian Strategic and Health

0.0

Correlation Coefficient

Australian Strategic  Health

Pay attention - limited upside

The 3 months correlation between Australian and Health is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Australian Strategic Materials and Health and Plant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health and Plant 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 Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health and Plant has no effect on the direction of Australian Strategic i.e., Australian Strategic and Health go up and down completely randomly.

Pair Corralation between Australian Strategic and Health

Assuming the 90 days trading horizon Australian Strategic Materials is expected to under-perform the Health. In addition to that, Australian Strategic is 3.5 times more volatile than Health and Plant. It trades about -0.04 of its total potential returns per unit of risk. Health and Plant is currently generating about -0.03 per unit of volatility. If you would invest  5.50  in Health and Plant on October 24, 2024 and sell it today you would lose (1.30) from holding Health and Plant or give up 23.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Australian Strategic Materials  vs.  Health and Plant

Australian Strategic

Risk-Adjusted Performance

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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 uncertain 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.

Health and Plant

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Health and Plant has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Health 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 Health

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

The idea behind Australian Strategic Materials and Health and Plant 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.