Correlation Between SPASX Dividend and Brickworks

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

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

Diversification Opportunities for SPASX Dividend and Brickworks

0.04

Correlation Coefficient

SPASX Dividend  Brickworks

Significant diversification

The 3 months correlation between SPASX and Brickworks is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding SPASX Dividend Opportunities and Brickworks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brickworks and SPASX Dividend 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 SPASX Dividend Opportunities are associated (or correlated) with Brickworks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brickworks has no effect on the direction of SPASX Dividend i.e., SPASX Dividend and Brickworks go up and down completely randomly.

Pair Corralation between SPASX Dividend and Brickworks

Assuming the 90 days trading horizon SPASX Dividend Opportunities is expected to under-perform the Brickworks. But the index apears to be less risky and, when comparing its historical volatility, SPASX Dividend Opportunities is 2.06 times less risky than Brickworks. The index trades about -0.05 of its potential returns per unit of risk. The Brickworks is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  2,600  in Brickworks on September 22, 2024 and sell it today you would lose (20.00) from holding Brickworks or give up 0.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.48%
Values	Daily Returns

SPASX Dividend Opportunities  vs.  Brickworks

Pair Trading with SPASX Dividend and Brickworks

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

The idea behind SPASX Dividend Opportunities and Brickworks 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.