Correlation Between Australian Agricultural and ZTO Express

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

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

Diversification Opportunities for Australian Agricultural and ZTO Express

0.23

Correlation Coefficient

Australian Agricultural  ZTO Express

Modest diversification

The 3 months correlation between Australian and ZTO is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and ZTO Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZTO Express 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 ZTO Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZTO Express has no effect on the direction of Australian Agricultural i.e., Australian Agricultural and ZTO Express go up and down completely randomly.

Pair Corralation between Australian Agricultural and ZTO Express

Assuming the 90 days horizon Australian Agricultural is expected to generate 0.62 times more return on investment than ZTO Express. However, Australian Agricultural is 1.61 times less risky than ZTO Express. It trades about 0.06 of its potential returns per unit of risk. ZTO Express is currently generating about -0.02 per unit of risk. If you would invest  83.00  in Australian Agricultural on December 22, 2024 and sell it today you would earn a total of  4.00  from holding Australian Agricultural or generate 4.82% 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.  ZTO Express

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.

ZTO Express

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Australian Agricultural and ZTO Express 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.