Correlation Between Iron Road and Australian Foundation

Can any of the company-specific risk be diversified away by investing in both Iron Road and Australian Foundation 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 Foundation 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 Foundation Investment, you can compare the effects of market volatilities on Iron Road and Australian Foundation 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 Foundation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iron Road and Australian Foundation.

Diversification Opportunities for Iron Road and Australian Foundation

-0.05

Correlation Coefficient

Iron Road  Australian Foundation

Good diversification

The 3 months correlation between Iron and Australian is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Iron Road and Australian Foundation Investme in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Foundation 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 Foundation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Foundation has no effect on the direction of Iron Road i.e., Iron Road and Australian Foundation go up and down completely randomly.

Pair Corralation between Iron Road and Australian Foundation

Assuming the 90 days trading horizon Iron Road is expected to generate 7.03 times more return on investment than Australian Foundation. However, Iron Road is 7.03 times more volatile than Australian Foundation Investment. It trades about 0.11 of its potential returns per unit of risk. Australian Foundation Investment is currently generating about -0.12 per unit of risk. If you would invest  5.30  in Iron Road on November 29, 2024 and sell it today you would earn a total of  0.30  from holding Iron Road or generate 5.66% return on investment over 90 days.

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

Iron Road  vs.  Australian Foundation Investme

Iron Road

Risk-Adjusted Performance

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 latest uncertain performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Australian Foundation

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Iron Road and Australian Foundation

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

The idea behind Iron Road and Australian Foundation Investment 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.