Correlation Between Aura Energy and Alligator Energy

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

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

Diversification Opportunities for Aura Energy and Alligator Energy

0.37

Correlation Coefficient

Aura Energy  Alligator Energy

Weak diversification

The 3 months correlation between Aura and Alligator is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Aura Energy Limited and Alligator Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alligator Energy and Aura Energy 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 Aura Energy Limited are associated (or correlated) with Alligator Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alligator Energy has no effect on the direction of Aura Energy i.e., Aura Energy and Alligator Energy go up and down completely randomly.

Pair Corralation between Aura Energy and Alligator Energy

Assuming the 90 days horizon Aura Energy is expected to generate 10.55 times less return on investment than Alligator Energy. But when comparing it to its historical volatility, Aura Energy Limited is 2.16 times less risky than Alligator Energy. It trades about 0.01 of its potential returns per unit of risk. Alligator Energy Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1.95  in Alligator Energy Limited on December 21, 2024 and sell it today you would earn a total of  0.00  from holding Alligator Energy Limited or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Aura Energy Limited  vs.  Alligator Energy Limited

Aura Energy Limited

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aura Energy Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Aura Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Alligator Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alligator Energy Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Alligator Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aura Energy and Alligator Energy

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

The idea behind Aura Energy Limited and Alligator Energy Limited 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.