Correlation Between EROAD and South32
Can any of the company-specific risk be diversified away by investing in both EROAD and South32 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 EROAD and South32 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EROAD and South32, you can compare the effects of market volatilities on EROAD and South32 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 EROAD with a short position of South32. Check out your portfolio center. Please also check ongoing floating volatility patterns of EROAD and South32.
Diversification Opportunities for EROAD and South32
Pay attention - limited upside
The 3 months correlation between EROAD and South32 is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding EROAD and South32 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South32 and EROAD 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 EROAD are associated (or correlated) with South32. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South32 has no effect on the direction of EROAD i.e., EROAD and South32 go up and down completely randomly.
Pair Corralation between EROAD and South32
Assuming the 90 days trading horizon EROAD is expected to under-perform the South32. In addition to that, EROAD is 1.12 times more volatile than South32. It trades about -0.04 of its total potential returns per unit of risk. South32 is currently generating about -0.02 per unit of volatility. If you would invest 373.00 in South32 on September 4, 2024 and sell it today you would lose (5.00) from holding South32 or give up 1.34% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
EROAD vs. South32
Performance |
| Timeline |
| EROAD |
| South32 |
EROAD and South32 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EROAD and South32
The main advantage of trading using opposite EROAD and South32 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EROAD position performs unexpectedly, South32 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 South32 will offset losses from the drop in South32's long position.| EROAD vs. Aneka Tambang Tbk | EROAD vs. National Australia Bank | EROAD vs. Commonwealth Bank of | EROAD vs. Commonwealth Bank of |
| South32 vs. Centaurus Metals | South32 vs. Retail Food Group | South32 vs. Super Retail Group | South32 vs. Dexus Convenience Retail |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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