Correlation Between Australian Dairy and Legacy Iron
Can any of the company-specific risk be diversified away by investing in both Australian Dairy and Legacy Iron 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 Dairy and Legacy Iron into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Australian Dairy Farms and Legacy Iron Ore, you can compare the effects of market volatilities on Australian Dairy and Legacy Iron 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 Dairy with a short position of Legacy Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Australian Dairy and Legacy Iron.
Diversification Opportunities for Australian Dairy and Legacy Iron
-0.19 | Correlation Coefficient |
Good diversification
The 3 months correlation between Australian and Legacy is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Australian Dairy Farms and Legacy Iron Ore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legacy Iron Ore and Australian Dairy 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 Dairy Farms are associated (or correlated) with Legacy Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legacy Iron Ore has no effect on the direction of Australian Dairy i.e., Australian Dairy and Legacy Iron go up and down completely randomly.
Pair Corralation between Australian Dairy and Legacy Iron
Assuming the 90 days trading horizon Australian Dairy Farms is expected to generate 1.28 times more return on investment than Legacy Iron. However, Australian Dairy is 1.28 times more volatile than Legacy Iron Ore. It trades about 0.05 of its potential returns per unit of risk. Legacy Iron Ore is currently generating about 0.01 per unit of risk. If you would invest 3.15 in Australian Dairy Farms on December 12, 2024 and sell it today you would earn a total of 2.05 from holding Australian Dairy Farms or generate 65.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Australian Dairy Farms vs. Legacy Iron Ore
Performance |
| Timeline |
| Australian Dairy Farms |
| Legacy Iron Ore |
Australian Dairy and Legacy Iron Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Australian Dairy and Legacy Iron
The main advantage of trading using opposite Australian Dairy and Legacy Iron positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Australian Dairy position performs unexpectedly, Legacy Iron 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 Legacy Iron will offset losses from the drop in Legacy Iron's long position.| Australian Dairy vs. Itech Minerals | ||
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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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