Correlation Between Australian Agricultural and COFACE SA

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

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

Diversification Opportunities for Australian Agricultural and COFACE SA

0.49

Correlation Coefficient

Australian Agricultural  COFACE SA

Very weak diversification

The 3 months correlation between Australian and COFACE is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and COFACE SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COFACE SA and Australian Agricultural 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 Agricultural are associated (or correlated) with COFACE SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COFACE SA has no effect on the direction of Australian Agricultural i.e., Australian Agricultural and COFACE SA go up and down completely randomly.

Pair Corralation between Australian Agricultural and COFACE SA

Assuming the 90 days horizon Australian Agricultural is expected to generate 1.55 times less return on investment than COFACE SA. But when comparing it to its historical volatility, Australian Agricultural is 1.62 times less risky than COFACE SA. It trades about 0.1 of its potential returns per unit of risk. COFACE SA is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,412  in COFACE SA on October 8, 2024 and sell it today you would earn a total of  26.00  from holding COFACE SA or generate 1.84% return on investment over 90 days.

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

Australian Agricultural  vs.  COFACE SA

Australian Agricultural

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Australian Agricultural has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Australian Agricultural is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

COFACE SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days COFACE SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, COFACE SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Australian Agricultural and COFACE SA

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

The idea behind Australian Agricultural and COFACE SA 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.