Correlation Between National Australia and Encounter Resources

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

Diversification Opportunities for National Australia and Encounter Resources

-0.77

Correlation Coefficient

National Australia  Encounter Resources

Pay attention - limited upside

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

Pair Corralation between National Australia and Encounter Resources

Assuming the 90 days trading horizon National Australia Bank is expected to generate 0.05 times more return on investment than Encounter Resources. However, National Australia Bank is 18.24 times less risky than Encounter Resources. It trades about 0.1 of its potential returns per unit of risk. Encounter Resources is currently generating about -0.06 per unit of risk. If you would invest  10,430  in National Australia Bank on September 4, 2024 and sell it today you would earn a total of  170.00  from holding National Australia Bank or generate 1.63% return on investment over 90 days.

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

National Australia Bank  vs.  Encounter Resources

National Australia Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Australia Bank are ranked lower than 7 (%) 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 current stock price disturbance, may contribute to short-term losses for the investors.

Encounter Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Encounter Resources 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 basic 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 Encounter Resources

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

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