Correlation Between National Australia and Carlton Investments

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

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

Diversification Opportunities for National Australia and Carlton Investments

0.6

Correlation Coefficient

National Australia  Carlton Investments

Poor diversification

The 3 months correlation between National and Carlton is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding National Australia Bank and Carlton Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carlton Investments and National Australia 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 National Australia Bank are associated (or correlated) with Carlton Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carlton Investments has no effect on the direction of National Australia i.e., National Australia and Carlton Investments go up and down completely randomly.

Pair Corralation between National Australia and Carlton Investments

Assuming the 90 days trading horizon National Australia Bank is expected to under-perform the Carlton Investments. In addition to that, National Australia is 1.5 times more volatile than Carlton Investments. It trades about -0.01 of its total potential returns per unit of risk. Carlton Investments is currently generating about 0.08 per unit of volatility. If you would invest  2,970  in Carlton Investments on September 12, 2024 and sell it today you would earn a total of  105.00  from holding Carlton Investments or generate 3.54% return on investment over 90 days.

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

National Australia Bank  vs.  Carlton Investments

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. In spite of comparatively stable fundamental drivers, National Australia is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Carlton Investments

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Carlton Investments are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Carlton Investments 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 National Australia and Carlton Investments

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

The idea behind National Australia Bank and Carlton Investments 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.