Correlation Between National Australia and Aurelia Metals

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

Diversification Opportunities for National Australia and Aurelia Metals

0.67

Correlation Coefficient

National Australia  Aurelia Metals

Poor diversification

The 3 months correlation between National and Aurelia is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding National Australia Bank and Aurelia Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurelia 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 Aurelia Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurelia Metals has no effect on the direction of National Australia i.e., National Australia and Aurelia Metals go up and down completely randomly.

Pair Corralation between National Australia and Aurelia Metals

Assuming the 90 days trading horizon National Australia is expected to generate 163.82 times less return on investment than Aurelia Metals. But when comparing it to its historical volatility, National Australia Bank is 26.8 times less risky than Aurelia Metals. It trades about 0.03 of its potential returns per unit of risk. Aurelia Metals is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  17.00  in Aurelia Metals on December 25, 2024 and sell it today you would earn a total of  9.00  from holding Aurelia Metals or generate 52.94% 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.  Aurelia Metals

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 2 (%) 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.

Aurelia Metals

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aurelia Metals are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Aurelia Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Australia and Aurelia Metals

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

The idea behind National Australia Bank and Aurelia 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.