Correlation Between North American and Australian Agricultural

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

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

Diversification Opportunities for North American and Australian Agricultural

-0.77

Correlation Coefficient

North American  Australian Agricultural

Pay attention - limited upside

The 3 months correlation between North and Australian is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Australian Agricultural in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Agricultural and North American 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 North American Construction are associated (or correlated) with Australian Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Agricultural has no effect on the direction of North American i.e., North American and Australian Agricultural go up and down completely randomly.

Pair Corralation between North American and Australian Agricultural

Assuming the 90 days horizon North American Construction is expected to under-perform the Australian Agricultural. In addition to that, North American is 1.68 times more volatile than Australian Agricultural. It trades about -0.18 of its total potential returns per unit of risk. Australian Agricultural is currently generating about 0.05 per unit of volatility. If you would invest  82.00  in Australian Agricultural on December 30, 2024 and sell it today you would earn a total of  3.00  from holding Australian Agricultural or generate 3.66% return on investment over 90 days.

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

North American Construction  vs.  Australian Agricultural

North American Const

Risk-Adjusted Performance

Very Weak

Over the last 90 days North American Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Australian Agricultural

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Australian Agricultural are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Australian Agricultural is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with North American and Australian Agricultural

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

The idea behind North American Construction and Australian Agricultural 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.