Correlation Between Consolidated Communications and Australian Agricultural
Can any of the company-specific risk be diversified away by investing in both Consolidated Communications and Australian Agricultural 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 Consolidated Communications and Australian Agricultural into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Consolidated Communications Holdings and Australian Agricultural, you can compare the effects of market volatilities on Consolidated Communications and Australian Agricultural 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 Consolidated Communications with a short position of Australian Agricultural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consolidated Communications and Australian Agricultural.
Diversification Opportunities for Consolidated Communications and Australian Agricultural
-0.19 | Correlation Coefficient |
Good diversification
The 3 months correlation between Consolidated and Australian is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Communications Ho and Australian Agricultural in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Agricultural and Consolidated Communications 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 Consolidated Communications Holdings are associated (or correlated) with Australian Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Agricultural has no effect on the direction of Consolidated Communications i.e., Consolidated Communications and Australian Agricultural go up and down completely randomly.
Pair Corralation between Consolidated Communications and Australian Agricultural
Assuming the 90 days horizon Consolidated Communications Holdings is expected to generate 0.53 times more return on investment than Australian Agricultural. However, Consolidated Communications Holdings is 1.88 times less risky than Australian Agricultural. It trades about 0.09 of its potential returns per unit of risk. Australian Agricultural is currently generating about -0.03 per unit of risk. If you would invest 400.00 in Consolidated Communications Holdings on September 3, 2024 and sell it today you would earn a total of 42.00 from holding Consolidated Communications Holdings or generate 10.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Consolidated Communications Ho vs. Australian Agricultural
Performance |
| Timeline |
| Consolidated Communications |
| Australian Agricultural |
Consolidated Communications and Australian Agricultural Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Consolidated Communications and Australian Agricultural
The main advantage of trading using opposite Consolidated Communications and Australian Agricultural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consolidated Communications position performs unexpectedly, Australian Agricultural 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 Australian Agricultural will offset losses from the drop in Australian Agricultural's long position.The idea behind Consolidated Communications Holdings and Australian Agricultural 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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