Correlation Between Australian Agricultural and ATT

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

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

Diversification Opportunities for Australian Agricultural and ATT

0.8

Correlation Coefficient

Australian Agricultural  ATT

Very poor diversification

The 3 months correlation between Australian and ATT is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and ATT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ATT Inc 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 ATT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ATT Inc has no effect on the direction of Australian Agricultural i.e., Australian Agricultural and ATT go up and down completely randomly.

Pair Corralation between Australian Agricultural and ATT

Assuming the 90 days horizon Australian Agricultural is expected to generate 2.78 times less return on investment than ATT. But when comparing it to its historical volatility, Australian Agricultural is 1.34 times less risky than ATT. It trades about 0.06 of its potential returns per unit of risk. ATT Inc is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,154  in ATT Inc on December 22, 2024 and sell it today you would earn a total of  316.00  from holding ATT Inc or generate 14.67% return on investment over 90 days.

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

Australian Agricultural  vs.  ATT Inc

Australian Agricultural

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Australian Agricultural are ranked lower than 4 (%) 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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

ATT Inc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, ATT reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Australian Agricultural and ATT

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

The idea behind Australian Agricultural and ATT Inc 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.