Correlation Between EROAD and Australian Foundation

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

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

Diversification Opportunities for EROAD and Australian Foundation

0.73

Correlation Coefficient

EROAD  Australian Foundation

Poor diversification

The 3 months correlation between EROAD and Australian is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding EROAD and Australian Foundation Investme in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Foundation and EROAD 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 EROAD are associated (or correlated) with Australian Foundation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Foundation has no effect on the direction of EROAD i.e., EROAD and Australian Foundation go up and down completely randomly.

Pair Corralation between EROAD and Australian Foundation

Assuming the 90 days trading horizon EROAD is expected to under-perform the Australian Foundation. In addition to that, EROAD is 5.12 times more volatile than Australian Foundation Investment. It trades about -0.09 of its total potential returns per unit of risk. Australian Foundation Investment is currently generating about -0.03 per unit of volatility. If you would invest  732.00  in Australian Foundation Investment on December 22, 2024 and sell it today you would lose (7.00) from holding Australian Foundation Investment or give up 0.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

EROAD  vs.  Australian Foundation Investme

EROAD

Risk-Adjusted Performance

Very Weak

Over the last 90 days EROAD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Australian Foundation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Australian Foundation Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, Australian Foundation is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with EROAD and Australian Foundation

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

The idea behind EROAD and Australian Foundation Investment 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.