Correlation Between ARISTOCRAT LEISURE and Geely Automobile

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

By analyzing existing cross correlation between ARISTOCRAT LEISURE and Geely Automobile Holdings, you can compare the effects of market volatilities on ARISTOCRAT LEISURE and Geely Automobile 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 ARISTOCRAT LEISURE with a short position of Geely Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARISTOCRAT LEISURE and Geely Automobile.

Diversification Opportunities for ARISTOCRAT LEISURE and Geely Automobile

0.75

Correlation Coefficient

ARISTOCRAT LEISURE  Geely Automobile

Poor diversification

The 3 months correlation between ARISTOCRAT and Geely is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding ARISTOCRAT LEISURE and Geely Automobile Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Geely Automobile Holdings and ARISTOCRAT LEISURE 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 ARISTOCRAT LEISURE are associated (or correlated) with Geely Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Geely Automobile Holdings has no effect on the direction of ARISTOCRAT LEISURE i.e., ARISTOCRAT LEISURE and Geely Automobile go up and down completely randomly.

Pair Corralation between ARISTOCRAT LEISURE and Geely Automobile

Assuming the 90 days trading horizon ARISTOCRAT LEISURE is expected to generate 0.35 times more return on investment than Geely Automobile. However, ARISTOCRAT LEISURE is 2.88 times less risky than Geely Automobile. It trades about 0.56 of its potential returns per unit of risk. Geely Automobile Holdings is currently generating about 0.06 per unit of risk. If you would invest  3,722  in ARISTOCRAT LEISURE on September 5, 2024 and sell it today you would earn a total of  538.00  from holding ARISTOCRAT LEISURE or generate 14.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

ARISTOCRAT LEISURE  vs.  Geely Automobile Holdings

ARISTOCRAT LEISURE

Risk-Adjusted Performance

34 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in ARISTOCRAT LEISURE are ranked lower than 34 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, ARISTOCRAT LEISURE unveiled solid returns over the last few months and may actually be approaching a breakup point.

Geely Automobile Holdings

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Geely Automobile Holdings are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Geely Automobile reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ARISTOCRAT LEISURE and Geely Automobile

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

The idea behind ARISTOCRAT LEISURE and Geely Automobile Holdings 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..