Correlation Between Australian Agricultural and USWE SPORTS

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

By analyzing existing cross correlation between Australian Agricultural and USWE SPORTS AB, you can compare the effects of market volatilities on Australian Agricultural and USWE SPORTS 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 USWE SPORTS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Australian Agricultural and USWE SPORTS.

Diversification Opportunities for Australian Agricultural and USWE SPORTS

0.09

Correlation Coefficient

Australian Agricultural  USWE SPORTS

Significant diversification

The 3 months correlation between Australian and USWE is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and USWE SPORTS AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on USWE SPORTS AB 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 USWE SPORTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of USWE SPORTS AB has no effect on the direction of Australian Agricultural i.e., Australian Agricultural and USWE SPORTS go up and down completely randomly.

Pair Corralation between Australian Agricultural and USWE SPORTS

Assuming the 90 days horizon Australian Agricultural is expected to generate 0.61 times more return on investment than USWE SPORTS. However, Australian Agricultural is 1.64 times less risky than USWE SPORTS. It trades about 0.05 of its potential returns per unit of risk. USWE SPORTS AB is currently generating about 0.02 per unit of risk. If you would invest  82.00  in Australian Agricultural on December 30, 2024 and sell it today you would earn a total of  3.00  from holding Australian Agricultural or generate 3.66% return on investment over 90 days.

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

Australian Agricultural  vs.  USWE SPORTS AB

Australian Agricultural

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Australian Agricultural are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Australian Agricultural is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

USWE SPORTS AB

Risk-Adjusted Performance

Weak

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

Pair Trading with Australian Agricultural and USWE SPORTS

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

The idea behind Australian Agricultural and USWE SPORTS AB 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.