Correlation Between Iron Road and Australian Bond

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

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

Diversification Opportunities for Iron Road and Australian Bond

-0.55

Correlation Coefficient

Iron Road  Australian Bond

Excellent diversification

The 3 months correlation between Iron and Australian is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Iron Road and Australian Bond Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Bond Exchange and Iron Road 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 Iron Road are associated (or correlated) with Australian Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Bond Exchange has no effect on the direction of Iron Road i.e., Iron Road and Australian Bond go up and down completely randomly.

Pair Corralation between Iron Road and Australian Bond

Assuming the 90 days trading horizon Iron Road is expected to under-perform the Australian Bond. But the stock apears to be less risky and, when comparing its historical volatility, Iron Road is 2.66 times less risky than Australian Bond. The stock trades about -0.12 of its potential returns per unit of risk. The Australian Bond Exchange is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  3.20  in Australian Bond Exchange on October 10, 2024 and sell it today you would lose (0.20) from holding Australian Bond Exchange or give up 6.25% of portfolio value over 90 days.

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

Iron Road  vs.  Australian Bond Exchange

Iron Road

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iron Road 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 February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Australian Bond Exchange

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Australian Bond Exchange are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Australian Bond unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Iron Road and Australian Bond

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

The idea behind Iron Road and Australian Bond Exchange 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.