Correlation Between Talisman Mining and Australian Agricultural

Can any of the company-specific risk be diversified away by investing in both Talisman Mining and Australian Agricultural 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 Talisman Mining and Australian Agricultural into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Talisman Mining and Australian Agricultural, you can compare the effects of market volatilities on Talisman Mining and Australian Agricultural 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 Talisman Mining with a short position of Australian Agricultural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Talisman Mining and Australian Agricultural.

Diversification Opportunities for Talisman Mining and Australian Agricultural

0.35

Correlation Coefficient

Talisman Mining  Australian Agricultural

Weak diversification

The 3 months correlation between Talisman and Australian is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Talisman Mining and Australian Agricultural in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Agricultural and Talisman Mining 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 Talisman Mining are associated (or correlated) with Australian Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Agricultural has no effect on the direction of Talisman Mining i.e., Talisman Mining and Australian Agricultural go up and down completely randomly.

Pair Corralation between Talisman Mining and Australian Agricultural

Assuming the 90 days trading horizon Talisman Mining is expected to generate 3.67 times more return on investment than Australian Agricultural. However, Talisman Mining is 3.67 times more volatile than Australian Agricultural. It trades about 0.02 of its potential returns per unit of risk. Australian Agricultural is currently generating about -0.01 per unit of risk. If you would invest  24.00  in Talisman Mining on October 14, 2024 and sell it today you would lose (3.00) from holding Talisman Mining or give up 12.5% of portfolio value over 90 days.

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

Talisman Mining  vs.  Australian Agricultural

Talisman Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Talisman Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Talisman Mining is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Australian Agricultural

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Australian Agricultural has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Australian Agricultural 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 Talisman Mining and Australian Agricultural

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

The idea behind Talisman Mining and Australian Agricultural 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.