Correlation Between Industrial and National Australia

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

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

Diversification Opportunities for Industrial and National Australia

-0.44

Correlation Coefficient

Industrial  National Australia

Very good diversification

The 3 months correlation between Industrial and National is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and National Australia Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Australia Bank and Industrial 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 Industrial and Commercial are associated (or correlated) with National Australia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Australia Bank has no effect on the direction of Industrial i.e., Industrial and National Australia go up and down completely randomly.

Pair Corralation between Industrial and National Australia

Assuming the 90 days horizon Industrial and Commercial is expected to generate 0.84 times more return on investment than National Australia. However, Industrial and Commercial is 1.19 times less risky than National Australia. It trades about 0.1 of its potential returns per unit of risk. National Australia Bank is currently generating about -0.09 per unit of risk. If you would invest  54.00  in Industrial and Commercial on September 12, 2024 and sell it today you would earn a total of  7.00  from holding Industrial and Commercial or generate 12.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

Industrial and Commercial  vs.  National Australia Bank

Industrial and Commercial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, Industrial reported solid returns over the last few months and may actually be approaching a breakup point.

National Australia Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Australia Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Industrial and National Australia

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

The idea behind Industrial and Commercial and National Australia Bank 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.