Correlation Between Australian Agricultural and Resource Base
Can any of the company-specific risk be diversified away by investing in both Australian Agricultural and Resource Base 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 Resource Base into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Australian Agricultural and Resource Base, you can compare the effects of market volatilities on Australian Agricultural and Resource Base 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 Resource Base. Check out your portfolio center. Please also check ongoing floating volatility patterns of Australian Agricultural and Resource Base.
Diversification Opportunities for Australian Agricultural and Resource Base
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Australian and Resource is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and Resource Base in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Resource Base 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 Resource Base. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Resource Base has no effect on the direction of Australian Agricultural i.e., Australian Agricultural and Resource Base go up and down completely randomly.
Pair Corralation between Australian Agricultural and Resource Base
Assuming the 90 days trading horizon Australian Agricultural is expected to under-perform the Resource Base. But the stock apears to be less risky and, when comparing its historical volatility, Australian Agricultural is 2.96 times less risky than Resource Base. The stock trades about -0.03 of its potential returns per unit of risk. The Resource Base is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 3.60 in Resource Base on September 2, 2024 and sell it today you would earn a total of 0.40 from holding Resource Base or generate 11.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Australian Agricultural vs. Resource Base
Performance |
| Timeline |
| Australian Agricultural |
| Resource Base |
Australian Agricultural and Resource Base Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Australian Agricultural and Resource Base
The main advantage of trading using opposite Australian Agricultural and Resource Base positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Australian Agricultural position performs unexpectedly, Resource Base 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 Resource Base will offset losses from the drop in Resource Base's long position.| Australian Agricultural vs. Aneka Tambang Tbk | Australian Agricultural vs. Commonwealth Bank of | Australian Agricultural vs. Australia and New | Australian Agricultural vs. ANZ Group Holdings |
| Resource Base vs. The Environmental Group | Resource Base vs. Credit Clear | Resource Base vs. Duxton Broadacre Farms | Resource Base vs. Hawsons Iron |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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