Correlation Between Australian Agricultural and DAIRY FARM
Can any of the company-specific risk be diversified away by investing in both Australian Agricultural and DAIRY FARM 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 DAIRY FARM into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Australian Agricultural and DAIRY FARM INTL, you can compare the effects of market volatilities on Australian Agricultural and DAIRY FARM 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 DAIRY FARM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Australian Agricultural and DAIRY FARM.
Diversification Opportunities for Australian Agricultural and DAIRY FARM
0.27 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Australian and DAIRY is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and DAIRY FARM INTL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DAIRY FARM INTL 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 DAIRY FARM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DAIRY FARM INTL has no effect on the direction of Australian Agricultural i.e., Australian Agricultural and DAIRY FARM go up and down completely randomly.
Pair Corralation between Australian Agricultural and DAIRY FARM
Assuming the 90 days horizon Australian Agricultural is expected to generate 1.12 times more return on investment than DAIRY FARM. However, Australian Agricultural is 1.12 times more volatile than DAIRY FARM INTL. It trades about 0.13 of its potential returns per unit of risk. DAIRY FARM INTL is currently generating about -0.1 per unit of risk. If you would invest 83.00 in Australian Agricultural on November 27, 2024 and sell it today you would earn a total of 4.00 from holding Australian Agricultural or generate 4.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Australian Agricultural vs. DAIRY FARM INTL
Performance |
| Timeline |
| Australian Agricultural |
| DAIRY FARM INTL |
Australian Agricultural and DAIRY FARM Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Australian Agricultural and DAIRY FARM
The main advantage of trading using opposite Australian Agricultural and DAIRY FARM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Australian Agricultural position performs unexpectedly, DAIRY FARM 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 DAIRY FARM will offset losses from the drop in DAIRY FARM's long position.The idea behind Australian Agricultural and DAIRY FARM INTL 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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