Correlation Between IDP Education and Aristocrat Leisure

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

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

Diversification Opportunities for IDP Education and Aristocrat Leisure

-0.82

Correlation Coefficient

IDP Education  Aristocrat Leisure

Pay attention - limited upside

The 3 months correlation between IDP and Aristocrat is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding IDP Education and Aristocrat Leisure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aristocrat Leisure and IDP Education 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 IDP Education 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 IDP Education i.e., IDP Education and Aristocrat Leisure go up and down completely randomly.

Pair Corralation between IDP Education and Aristocrat Leisure

Assuming the 90 days trading horizon IDP Education is expected to under-perform the Aristocrat Leisure. In addition to that, IDP Education is 1.65 times more volatile than Aristocrat Leisure. It trades about -0.15 of its total potential returns per unit of risk. Aristocrat Leisure is currently generating about 0.26 per unit of volatility. If you would invest  5,738  in Aristocrat Leisure on October 8, 2024 and sell it today you would earn a total of  1,242  from holding Aristocrat Leisure or generate 21.65% return on investment over 90 days.

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

IDP Education  vs.  Aristocrat Leisure

IDP Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IDP Education 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 essential indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Aristocrat Leisure

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aristocrat Leisure are ranked lower than 20 (%) 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 IDP Education and Aristocrat Leisure

The main advantage of trading using opposite IDP Education and Aristocrat Leisure positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IDP Education 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 IDP Education 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.