Correlation Between Austrian Traded and Este Lauder

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

By analyzing existing cross correlation between Austrian Traded Index and The Este Lauder, you can compare the effects of market volatilities on Austrian Traded and Este Lauder 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 Austrian Traded with a short position of Este Lauder. Check out your portfolio center. Please also check ongoing floating volatility patterns of Austrian Traded and Este Lauder.

Diversification Opportunities for Austrian Traded and Este Lauder

-0.63

Correlation Coefficient

Austrian Traded  Este Lauder

Excellent diversification

The 3 months correlation between Austrian and Este is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Austrian Traded Index and The Este Lauder in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Este Lauder and Austrian Traded 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 Austrian Traded Index are associated (or correlated) with Este Lauder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Este Lauder has no effect on the direction of Austrian Traded i.e., Austrian Traded and Este Lauder go up and down completely randomly.

Pair Corralation between Austrian Traded and Este Lauder

Assuming the 90 days trading horizon Austrian Traded Index is expected to generate 0.39 times more return on investment than Este Lauder. However, Austrian Traded Index is 2.55 times less risky than Este Lauder. It trades about 0.17 of its potential returns per unit of risk. The Este Lauder is currently generating about -0.05 per unit of risk. If you would invest  366,301  in Austrian Traded Index on December 30, 2024 and sell it today you would earn a total of  51,292  from holding Austrian Traded Index or generate 14.0% return on investment over 90 days.

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

Austrian Traded Index  vs.  The Este Lauder

Pair Trading with Austrian Traded and Este Lauder

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

The idea behind Austrian Traded Index and The Este Lauder 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.