Correlation Between BC IRON and Aristocrat Leisure

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

By analyzing existing cross correlation between BC IRON and Aristocrat Leisure Limited, you can compare the effects of market volatilities on BC IRON and Aristocrat Leisure 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 BC IRON with a short position of Aristocrat Leisure. Check out your portfolio center. Please also check ongoing floating volatility patterns of BC IRON and Aristocrat Leisure.

Diversification Opportunities for BC IRON and Aristocrat Leisure

-0.19

Correlation Coefficient

BC IRON  Aristocrat Leisure

Good diversification

The 3 months correlation between BC3 and Aristocrat is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding BC IRON and Aristocrat Leisure Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aristocrat Leisure and BC IRON 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 BC IRON are associated (or correlated) with Aristocrat Leisure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aristocrat Leisure has no effect on the direction of BC IRON i.e., BC IRON and Aristocrat Leisure go up and down completely randomly.

Pair Corralation between BC IRON and Aristocrat Leisure

Assuming the 90 days trading horizon BC IRON is expected to under-perform the Aristocrat Leisure. But the stock apears to be less risky and, when comparing its historical volatility, BC IRON is 1.09 times less risky than Aristocrat Leisure. The stock trades about -0.32 of its potential returns per unit of risk. The Aristocrat Leisure Limited is currently generating about -0.22 of returns per unit of risk over similar time horizon. If you would invest  4,480  in Aristocrat Leisure Limited on December 10, 2024 and sell it today you would lose (440.00) from holding Aristocrat Leisure Limited or give up 9.82% of portfolio value over 90 days.

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

BC IRON  vs.  Aristocrat Leisure Limited

BC IRON

Risk-Adjusted Performance

Very Weak

Over the last 90 days BC IRON has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Aristocrat Leisure

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aristocrat Leisure Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Aristocrat Leisure is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BC IRON and Aristocrat Leisure

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

The idea behind BC IRON and Aristocrat Leisure Limited 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.