Correlation Between SPASX Dividend and Brambles

Can any of the company-specific risk be diversified away by investing in both SPASX Dividend and Brambles 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 SPASX Dividend and Brambles into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SPASX Dividend Opportunities and Brambles, you can compare the effects of market volatilities on SPASX Dividend and Brambles 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 SPASX Dividend with a short position of Brambles. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPASX Dividend and Brambles.

Diversification Opportunities for SPASX Dividend and Brambles

0.49

Correlation Coefficient

SPASX Dividend  Brambles

Very weak diversification

The 3 months correlation between SPASX and Brambles is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding SPASX Dividend Opportunities and Brambles in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brambles and SPASX Dividend 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 SPASX Dividend Opportunities are associated (or correlated) with Brambles. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brambles has no effect on the direction of SPASX Dividend i.e., SPASX Dividend and Brambles go up and down completely randomly.

Pair Corralation between SPASX Dividend and Brambles

Assuming the 90 days trading horizon SPASX Dividend Opportunities is expected to under-perform the Brambles. But the index apears to be less risky and, when comparing its historical volatility, SPASX Dividend Opportunities is 1.36 times less risky than Brambles. The index trades about -0.36 of its potential returns per unit of risk. The Brambles is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,916  in Brambles on September 23, 2024 and sell it today you would lose (9.00) from holding Brambles or give up 0.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

SPASX Dividend Opportunities  vs.  Brambles

Pair Trading with SPASX Dividend and Brambles

The main advantage of trading using opposite SPASX Dividend and Brambles positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPASX Dividend position performs unexpectedly, Brambles 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 Brambles will offset losses from the drop in Brambles' long position.

The idea behind SPASX Dividend Opportunities and Brambles 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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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.