Correlation Between Ironbark Capital and Aristocrat Leisure

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

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

Diversification Opportunities for Ironbark Capital and Aristocrat Leisure

0.44

Correlation Coefficient

Ironbark Capital  Aristocrat Leisure

Very weak diversification

The 3 months correlation between Ironbark and Aristocrat is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Ironbark Capital and Aristocrat Leisure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aristocrat Leisure and Ironbark Capital 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 Ironbark Capital 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 Ironbark Capital i.e., Ironbark Capital and Aristocrat Leisure go up and down completely randomly.

Pair Corralation between Ironbark Capital and Aristocrat Leisure

Assuming the 90 days trading horizon Ironbark Capital is expected to generate 12.69 times less return on investment than Aristocrat Leisure. But when comparing it to its historical volatility, Ironbark Capital is 1.13 times less risky than Aristocrat Leisure. It trades about 0.01 of its potential returns per unit of risk. Aristocrat Leisure is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,271  in Aristocrat Leisure on September 1, 2024 and sell it today you would earn a total of  3,504  from holding Aristocrat Leisure or generate 107.12% return on investment over 90 days.

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

Ironbark Capital  vs.  Aristocrat Leisure

Ironbark Capital

Risk-Adjusted Performance

0 of 100

Very Weak

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

Aristocrat Leisure

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aristocrat Leisure are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, Aristocrat Leisure unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ironbark Capital and Aristocrat Leisure

The main advantage of trading using opposite Ironbark Capital and Aristocrat Leisure positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ironbark Capital 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 Ironbark Capital and Aristocrat Leisure 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.