Correlation Between PM Capital and Wam Leaders
Can any of the company-specific risk be diversified away by investing in both PM Capital and Wam Leaders 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 PM Capital and Wam Leaders into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PM Capital Global and Wam Leaders, you can compare the effects of market volatilities on PM Capital and Wam Leaders 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 PM Capital with a short position of Wam Leaders. Check out your portfolio center. Please also check ongoing floating volatility patterns of PM Capital and Wam Leaders.
Diversification Opportunities for PM Capital and Wam Leaders
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between PGF and Wam is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding PM Capital Global and Wam Leaders in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wam Leaders and PM Capital 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 PM Capital Global are associated (or correlated) with Wam Leaders. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wam Leaders has no effect on the direction of PM Capital i.e., PM Capital and Wam Leaders go up and down completely randomly.
Pair Corralation between PM Capital and Wam Leaders
Assuming the 90 days trading horizon PM Capital Global is expected to generate 1.0 times more return on investment than Wam Leaders. However, PM Capital is 1.0 times more volatile than Wam Leaders. It trades about 0.08 of its potential returns per unit of risk. Wam Leaders is currently generating about -0.02 per unit of risk. If you would invest 216.00 in PM Capital Global on August 28, 2024 and sell it today you would earn a total of 11.00 from holding PM Capital Global or generate 5.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
PM Capital Global vs. Wam Leaders
Performance |
| Timeline |
| PM Capital Global |
| Wam Leaders |
PM Capital and Wam Leaders Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PM Capital and Wam Leaders
The main advantage of trading using opposite PM Capital and Wam Leaders positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PM Capital position performs unexpectedly, Wam Leaders 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 Wam Leaders will offset losses from the drop in Wam Leaders' long position.| PM Capital vs. National Australia Bank | PM Capital vs. National Australia Bank | PM Capital vs. Westpac Banking | PM Capital vs. National Australia Bank |
| Wam Leaders vs. National Australia Bank | Wam Leaders vs. National Australia Bank | Wam Leaders vs. Westpac Banking | Wam Leaders vs. National Australia Bank |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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