Correlation Between Ecofibre and Austral Gold

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

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

Diversification Opportunities for Ecofibre and Austral Gold

-0.42

Correlation Coefficient

Ecofibre  Austral Gold

Very good diversification

The 3 months correlation between Ecofibre and Austral is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Ecofibre and Austral Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Austral Gold and Ecofibre 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 Ecofibre are associated (or correlated) with Austral Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Austral Gold has no effect on the direction of Ecofibre i.e., Ecofibre and Austral Gold go up and down completely randomly.

Pair Corralation between Ecofibre and Austral Gold

Assuming the 90 days trading horizon Ecofibre is expected to under-perform the Austral Gold. But the stock apears to be less risky and, when comparing its historical volatility, Ecofibre is 1.59 times less risky than Austral Gold. The stock trades about -0.03 of its potential returns per unit of risk. The Austral Gold is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2.50  in Austral Gold on December 30, 2024 and sell it today you would earn a total of  3.00  from holding Austral Gold or generate 120.0% return on investment over 90 days.

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

Ecofibre  vs.  Austral Gold

Ecofibre

Risk-Adjusted Performance

Very Weak

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

Austral Gold

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Austral Gold are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Austral Gold unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ecofibre and Austral Gold

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

The idea behind Ecofibre and Austral Gold 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.