Correlation Between National Australia and Energy Technologies

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

Diversification Opportunities for National Australia and Energy Technologies

0.08

Correlation Coefficient

National Australia  Energy Technologies

Significant diversification

The 3 months correlation between National and Energy is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding National Australia Bank and Energy Technologies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Technologies 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 Energy Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Technologies has no effect on the direction of National Australia i.e., National Australia and Energy Technologies go up and down completely randomly.

Pair Corralation between National Australia and Energy Technologies

Assuming the 90 days trading horizon National Australia is expected to generate 13.97 times less return on investment than Energy Technologies. But when comparing it to its historical volatility, National Australia Bank is 19.25 times less risky than Energy Technologies. It trades about 0.02 of its potential returns per unit of risk. Energy Technologies Limited is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3.10  in Energy Technologies Limited on December 30, 2024 and sell it today you would earn a total of  0.00  from holding Energy Technologies Limited or generate 0.0% return on investment over 90 days.

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

National Australia Bank  vs.  Energy Technologies Limited

National Australia Bank

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in National Australia Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, National Australia is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Energy Technologies

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Technologies Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Energy Technologies 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 Energy Technologies

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

The idea behind National Australia Bank and Energy Technologies Limited 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.