Correlation Between Australian Agricultural and Mount Gibson

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

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

Diversification Opportunities for Australian Agricultural and Mount Gibson

0.39

Correlation Coefficient

Australian Agricultural  Mount Gibson

Weak diversification

The 3 months correlation between Australian and Mount is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and Mount Gibson Iron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mount Gibson Iron 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 Mount Gibson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mount Gibson Iron has no effect on the direction of Australian Agricultural i.e., Australian Agricultural and Mount Gibson go up and down completely randomly.

Pair Corralation between Australian Agricultural and Mount Gibson

Assuming the 90 days horizon Australian Agricultural is expected to generate 6.87 times less return on investment than Mount Gibson. But when comparing it to its historical volatility, Australian Agricultural is 2.62 times less risky than Mount Gibson. It trades about 0.0 of its potential returns per unit of risk. Mount Gibson Iron is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  17.00  in Mount Gibson Iron on October 25, 2024 and sell it today you would earn a total of  0.00  from holding Mount Gibson Iron or generate 0.0% return on investment over 90 days.

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

Australian Agricultural  vs.  Mount Gibson Iron

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.

Mount Gibson Iron

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mount Gibson Iron has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Mount Gibson 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 Mount Gibson

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

The idea behind Australian Agricultural and Mount Gibson Iron 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.