Correlation Between Challenger and Australian Agricultural
Can any of the company-specific risk be diversified away by investing in both Challenger 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 Challenger and Australian Agricultural into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Challenger and Australian Agricultural, you can compare the effects of market volatilities on Challenger 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 Challenger with a short position of Australian Agricultural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Challenger and Australian Agricultural.
Diversification Opportunities for Challenger and Australian Agricultural
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Challenger and Australian is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Challenger and Australian Agricultural in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Agricultural and Challenger 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 Challenger 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 Challenger i.e., Challenger and Australian Agricultural go up and down completely randomly.
Pair Corralation between Challenger and Australian Agricultural
Assuming the 90 days trading horizon Challenger is expected to under-perform the Australian Agricultural. In addition to that, Challenger is 1.12 times more volatile than Australian Agricultural. It trades about -0.01 of its total potential returns per unit of risk. Australian Agricultural is currently generating about 0.0 per unit of volatility. If you would invest 141.00 in Australian Agricultural on September 15, 2024 and sell it today you would lose (2.00) from holding Australian Agricultural or give up 1.42% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Challenger vs. Australian Agricultural
Performance |
| Timeline |
| Challenger |
| Australian Agricultural |
Challenger and Australian Agricultural Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Challenger and Australian Agricultural
The main advantage of trading using opposite Challenger and Australian Agricultural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Challenger 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.| Challenger vs. Hutchison Telecommunications | Challenger vs. Treasury Wine Estates | Challenger vs. Data3 | Challenger vs. Kneomedia |
| Australian Agricultural vs. Aneka Tambang Tbk | Australian Agricultural vs. Macquarie Group | Australian Agricultural vs. Macquarie Group Ltd | Australian Agricultural vs. Challenger |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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