Correlation Between Aurora World and Design

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

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

Diversification Opportunities for Aurora World and Design

-0.25

Correlation Coefficient

Aurora World  Design

Very good diversification

The 3 months correlation between Aurora and Design is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Aurora World and Design Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Design and Aurora World 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 Aurora World are associated (or correlated) with Design. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Design has no effect on the direction of Aurora World i.e., Aurora World and Design go up and down completely randomly.

Pair Corralation between Aurora World and Design

Assuming the 90 days trading horizon Aurora World is expected to generate 1.4 times less return on investment than Design. But when comparing it to its historical volatility, Aurora World is 5.35 times less risky than Design. It trades about 0.13 of its potential returns per unit of risk. Design Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  75,100  in Design Co on September 23, 2024 and sell it today you would lose (5,300) from holding Design Co or give up 7.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Aurora World  vs.  Design Co

Aurora World

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aurora World are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Aurora World sustained solid returns over the last few months and may actually be approaching a breakup point.

Design

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Design Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Design sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aurora World and Design

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

The idea behind Aurora World and Design Co 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.

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 Transaction History module to view history of all your transactions and understand their impact on performance.