Correlation Between National Australia and Centrex Metals

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

Diversification Opportunities for National Australia and Centrex Metals

-0.55

Correlation Coefficient

National Australia  Centrex Metals

Excellent diversification

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

Pair Corralation between National Australia and Centrex Metals

Assuming the 90 days trading horizon National Australia Bank is expected to generate 0.21 times more return on investment than Centrex Metals. However, National Australia Bank is 4.78 times less risky than Centrex Metals. It trades about -0.17 of its potential returns per unit of risk. Centrex Metals is currently generating about -0.28 per unit of risk. If you would invest  3,914  in National Australia Bank on September 27, 2024 and sell it today you would lose (175.00) from holding National Australia Bank or give up 4.47% of portfolio value over 90 days.

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

National Australia Bank  vs.  Centrex Metals

National Australia Bank

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in National Australia Bank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Centrex Metals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with National Australia and Centrex Metals

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

The idea behind National Australia Bank and Centrex Metals 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.