Correlation Between Australian Agricultural and IShares Global
Can any of the company-specific risk be diversified away by investing in both Australian Agricultural and IShares Global 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 Australian Agricultural and IShares Global into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Australian Agricultural and iShares Global Healthcare, you can compare the effects of market volatilities on Australian Agricultural and IShares Global 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 Australian Agricultural with a short position of IShares Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Australian Agricultural and IShares Global.
Diversification Opportunities for Australian Agricultural and IShares Global
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Australian and IShares is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and iShares Global Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global Healthcare and Australian Agricultural 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 Australian Agricultural are associated (or correlated) with IShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Global Healthcare has no effect on the direction of Australian Agricultural i.e., Australian Agricultural and IShares Global go up and down completely randomly.
Pair Corralation between Australian Agricultural and IShares Global
Assuming the 90 days trading horizon Australian Agricultural is expected to generate 1.18 times more return on investment than IShares Global. However, Australian Agricultural is 1.18 times more volatile than iShares Global Healthcare. It trades about -0.09 of its potential returns per unit of risk. iShares Global Healthcare is currently generating about -0.16 per unit of risk. If you would invest 140.00 in Australian Agricultural on August 28, 2024 and sell it today you would lose (3.00) from holding Australian Agricultural or give up 2.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Australian Agricultural vs. iShares Global Healthcare
Performance |
| Timeline |
| Australian Agricultural |
| iShares Global Healthcare |
Australian Agricultural and IShares Global Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Australian Agricultural and IShares Global
The main advantage of trading using opposite Australian Agricultural and IShares Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Australian Agricultural position performs unexpectedly, IShares Global 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 IShares Global will offset losses from the drop in IShares Global's long position.The idea behind Australian Agricultural and iShares Global Healthcare 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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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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