Correlation Between Australian Agricultural and ALIOR BANK

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

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

Diversification Opportunities for Australian Agricultural and ALIOR BANK

0.2

Correlation Coefficient

Australian Agricultural  ALIOR BANK

Modest diversification

The 3 months correlation between Australian and ALIOR is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and ALIOR BANK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALIOR BANK 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 ALIOR BANK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALIOR BANK has no effect on the direction of Australian Agricultural i.e., Australian Agricultural and ALIOR BANK go up and down completely randomly.

Pair Corralation between Australian Agricultural and ALIOR BANK

Assuming the 90 days horizon Australian Agricultural is expected to under-perform the ALIOR BANK. But the stock apears to be less risky and, when comparing its historical volatility, Australian Agricultural is 1.28 times less risky than ALIOR BANK. The stock trades about -0.02 of its potential returns per unit of risk. The ALIOR BANK is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  559.00  in ALIOR BANK on September 19, 2024 and sell it today you would earn a total of  1,481  from holding ALIOR BANK or generate 264.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Australian Agricultural  vs.  ALIOR BANK

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

ALIOR BANK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALIOR BANK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, ALIOR BANK is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Australian Agricultural and ALIOR BANK

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

The idea behind Australian Agricultural and ALIOR BANK 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.