Correlation Between GrainCorp and Golden Agri-Resources

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

By analyzing existing cross correlation between GrainCorp Limited and Golden Agri Resources, you can compare the effects of market volatilities on GrainCorp and Golden Agri-Resources 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 GrainCorp with a short position of Golden Agri-Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of GrainCorp and Golden Agri-Resources.

Diversification Opportunities for GrainCorp and Golden Agri-Resources

0.36

Correlation Coefficient

GrainCorp  Golden Agri-Resources

Weak diversification

The 3 months correlation between GrainCorp and Golden is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding GrainCorp Limited and Golden Agri Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Golden Agri Resources and GrainCorp 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 GrainCorp Limited are associated (or correlated) with Golden Agri-Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Golden Agri Resources has no effect on the direction of GrainCorp i.e., GrainCorp and Golden Agri-Resources go up and down completely randomly.

Pair Corralation between GrainCorp and Golden Agri-Resources

Assuming the 90 days horizon GrainCorp Limited is expected to under-perform the Golden Agri-Resources. In addition to that, GrainCorp is 2.19 times more volatile than Golden Agri Resources. It trades about -0.01 of its total potential returns per unit of risk. Golden Agri Resources is currently generating about -0.01 per unit of volatility. If you would invest  2,080  in Golden Agri Resources on December 27, 2024 and sell it today you would lose (81.00) from holding Golden Agri Resources or give up 3.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

GrainCorp Limited  vs.  Golden Agri Resources

GrainCorp Limited

Risk-Adjusted Performance

Very Weak

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

Golden Agri Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Golden Agri Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Golden Agri-Resources is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GrainCorp and Golden Agri-Resources

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

The idea behind GrainCorp Limited and Golden Agri Resources 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..