Correlation Between Australian United and Capitol Health

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

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

Diversification Opportunities for Australian United and Capitol Health

0.46

Correlation Coefficient

Australian United  Capitol Health

Very weak diversification

The 3 months correlation between Australian and Capitol is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Australian United Investment and Capitol Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capitol Health and Australian United 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 United Investment are associated (or correlated) with Capitol Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capitol Health has no effect on the direction of Australian United i.e., Australian United and Capitol Health go up and down completely randomly.

Pair Corralation between Australian United and Capitol Health

Assuming the 90 days trading horizon Australian United Investment is expected to under-perform the Capitol Health. But the stock apears to be less risky and, when comparing its historical volatility, Australian United Investment is 3.01 times less risky than Capitol Health. The stock trades about -0.02 of its potential returns per unit of risk. The Capitol Health is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  32.00  in Capitol Health on September 18, 2024 and sell it today you would earn a total of  7.00  from holding Capitol Health or generate 21.88% return on investment over 90 days.

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

Australian United Investment  vs.  Capitol Health

Australian United

Risk-Adjusted Performance

0 of 100

Very Weak

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

Capitol Health

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capitol Health are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward-looking indicators, Capitol Health unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Australian United and Capitol Health

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

The idea behind Australian United Investment and Capitol Health 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.