Correlation Between Australian Agricultural and M3 Mining

Can any of the company-specific risk be diversified away by investing in both Australian Agricultural and M3 Mining 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 Australian Agricultural and M3 Mining into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Australian Agricultural and M3 Mining, you can compare the effects of market volatilities on Australian Agricultural and M3 Mining 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 Australian Agricultural with a short position of M3 Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Australian Agricultural and M3 Mining.

Diversification Opportunities for Australian Agricultural and M3 Mining

0.59

Correlation Coefficient

Australian Agricultural  M3 Mining

Very weak diversification

The 3 months correlation between Australian and M3M is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and M3 Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M3 Mining and Australian Agricultural 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 Australian Agricultural are associated (or correlated) with M3 Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M3 Mining has no effect on the direction of Australian Agricultural i.e., Australian Agricultural and M3 Mining go up and down completely randomly.

Pair Corralation between Australian Agricultural and M3 Mining

Assuming the 90 days trading horizon Australian Agricultural is expected to generate 2.19 times less return on investment than M3 Mining. But when comparing it to its historical volatility, Australian Agricultural is 3.78 times less risky than M3 Mining. It trades about 0.03 of its potential returns per unit of risk. M3 Mining is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3.40  in M3 Mining on September 16, 2024 and sell it today you would earn a total of  0.00  from holding M3 Mining or generate 0.0% return on investment over 90 days.

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

Australian Agricultural  vs.  M3 Mining

Australian Agricultural

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Australian Agricultural has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Australian Agricultural is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

M3 Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days M3 Mining 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 primary indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Australian Agricultural and M3 Mining

The main advantage of trading using opposite Australian Agricultural and M3 Mining positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Australian Agricultural position performs unexpectedly, M3 Mining 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 M3 Mining will offset losses from the drop in M3 Mining's long position.

The idea behind Australian Agricultural and M3 Mining 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.