Correlation Between Australian Agricultural and RenaissanceRe Holdings
Can any of the company-specific risk be diversified away by investing in both Australian Agricultural and RenaissanceRe Holdings 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 RenaissanceRe Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Australian Agricultural and RenaissanceRe Holdings, you can compare the effects of market volatilities on Australian Agricultural and RenaissanceRe Holdings 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 RenaissanceRe Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Australian Agricultural and RenaissanceRe Holdings.
Diversification Opportunities for Australian Agricultural and RenaissanceRe Holdings
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Australian and RenaissanceRe is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and RenaissanceRe Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RenaissanceRe Holdings 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 RenaissanceRe Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RenaissanceRe Holdings has no effect on the direction of Australian Agricultural i.e., Australian Agricultural and RenaissanceRe Holdings go up and down completely randomly.
Pair Corralation between Australian Agricultural and RenaissanceRe Holdings
Assuming the 90 days horizon Australian Agricultural is expected to generate 0.77 times more return on investment than RenaissanceRe Holdings. However, Australian Agricultural is 1.29 times less risky than RenaissanceRe Holdings. It trades about 0.07 of its potential returns per unit of risk. RenaissanceRe Holdings is currently generating about 0.01 per unit of risk. If you would invest 82.00 in Australian Agricultural on October 29, 2024 and sell it today you would earn a total of 1.00 from holding Australian Agricultural or generate 1.22% 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. RenaissanceRe Holdings
Performance |
| Timeline |
| Australian Agricultural |
| RenaissanceRe Holdings |
Australian Agricultural and RenaissanceRe Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Australian Agricultural and RenaissanceRe Holdings
The main advantage of trading using opposite Australian Agricultural and RenaissanceRe Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Australian Agricultural position performs unexpectedly, RenaissanceRe Holdings 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 RenaissanceRe Holdings will offset losses from the drop in RenaissanceRe Holdings' long position.The idea behind Australian Agricultural and RenaissanceRe Holdings 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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