Correlation Between National Australia and Ramsay Health

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

Diversification Opportunities for National Australia and Ramsay Health

-0.11

Correlation Coefficient

National Australia  Ramsay Health

Good diversification

The 3 months correlation between National and Ramsay is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding National Australia Bank and Ramsay Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ramsay Health Care 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 Ramsay Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ramsay Health Care has no effect on the direction of National Australia i.e., National Australia and Ramsay Health go up and down completely randomly.

Pair Corralation between National Australia and Ramsay Health

Assuming the 90 days trading horizon National Australia is expected to generate 1.42 times less return on investment than Ramsay Health. But when comparing it to its historical volatility, National Australia Bank is 10.43 times less risky than Ramsay Health. It trades about 0.06 of its potential returns per unit of risk. Ramsay Health Care is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,434  in Ramsay Health Care on December 24, 2024 and sell it today you would earn a total of  1.00  from holding Ramsay Health Care or generate 0.03% return on investment over 90 days.

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

National Australia Bank  vs.  Ramsay Health Care

National Australia Bank

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in National Australia Bank are ranked lower than 5 (%) 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.

Ramsay Health Care

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ramsay Health Care has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Ramsay Health 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 Ramsay Health

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

The idea behind National Australia Bank and Ramsay Health Care 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.