Correlation Between Energy Resources and Australian Agricultural

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

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

Diversification Opportunities for Energy Resources and Australian Agricultural

-0.44

Correlation Coefficient

Energy Resources  Australian Agricultural

Very good diversification

The 3 months correlation between Energy and Australian is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Energy Resources and Australian Agricultural in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Agricultural and Energy Resources 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 Energy Resources 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 Energy Resources i.e., Energy Resources and Australian Agricultural go up and down completely randomly.

Pair Corralation between Energy Resources and Australian Agricultural

Assuming the 90 days trading horizon Energy Resources is expected to under-perform the Australian Agricultural. In addition to that, Energy Resources is 1.89 times more volatile than Australian Agricultural. It trades about -0.41 of its total potential returns per unit of risk. Australian Agricultural is currently generating about -0.07 per unit of volatility. If you would invest  151.00  in Australian Agricultural on April 2, 2024 and sell it today you would lose (5.00) from holding Australian Agricultural or give up 3.31% of portfolio value over 90 days.

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

Energy Resources  vs.  Australian Agricultural

Energy Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in August 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Australian Agricultural

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Australian Agricultural are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Australian Agricultural may actually be approaching a critical reversion point that can send shares even higher in August 2024.

Pair Trading with Energy Resources and Australian Agricultural

The main advantage of trading using opposite Energy Resources and Australian Agricultural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Resources 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 Energy Resources 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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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 CEOs Directory module to screen CEOs from public companies around the world.