Correlation Between Australian Agricultural and Air Lease

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

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

Diversification Opportunities for Australian Agricultural and Air Lease

-0.57

Correlation Coefficient

Australian Agricultural  Air Lease

Excellent diversification

The 3 months correlation between Australian and Air is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and Air Lease in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Lease 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 Air Lease. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Lease has no effect on the direction of Australian Agricultural i.e., Australian Agricultural and Air Lease go up and down completely randomly.

Pair Corralation between Australian Agricultural and Air Lease

Assuming the 90 days horizon Australian Agricultural is expected to generate 0.71 times more return on investment than Air Lease. However, Australian Agricultural is 1.4 times less risky than Air Lease. It trades about -0.11 of its potential returns per unit of risk. Air Lease is currently generating about -0.11 per unit of risk. If you would invest  85.00  in Australian Agricultural on September 22, 2024 and sell it today you would lose (2.00) from holding Australian Agricultural or give up 2.35% of portfolio value over 90 days.

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

Australian Agricultural  vs.  Air Lease

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.

Air Lease

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Air Lease are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Air Lease may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Australian Agricultural and Air Lease

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

The idea behind Australian Agricultural and Air Lease 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.