Correlation Between Aura Investments and Arad Investment

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

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

Diversification Opportunities for Aura Investments and Arad Investment

0.85

Correlation Coefficient

Aura Investments  Arad Investment

Very poor diversification

The 3 months correlation between Aura and Arad is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Aura Investments and Arad Investment Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arad Investment Indu and Aura Investments 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 Investments are associated (or correlated) with Arad Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arad Investment Indu has no effect on the direction of Aura Investments i.e., Aura Investments and Arad Investment go up and down completely randomly.

Pair Corralation between Aura Investments and Arad Investment

Assuming the 90 days trading horizon Aura Investments is expected to generate 0.79 times more return on investment than Arad Investment. However, Aura Investments is 1.26 times less risky than Arad Investment. It trades about -0.14 of its potential returns per unit of risk. Arad Investment Industrial is currently generating about -0.18 per unit of risk. If you would invest  214,500  in Aura Investments on December 29, 2024 and sell it today you would lose (37,000) from holding Aura Investments or give up 17.25% of portfolio value over 90 days.

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

Aura Investments  vs.  Arad Investment Industrial

Aura Investments

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aura Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Arad Investment Indu

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arad Investment Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Aura Investments and Arad Investment

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

The idea behind Aura Investments and Arad Investment Industrial 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.