Correlation Between ARISTOCRAT LEISURE and SIMCERE PHARMAC

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

By analyzing existing cross correlation between ARISTOCRAT LEISURE and SIMCERE PHARMAC GRP, you can compare the effects of market volatilities on ARISTOCRAT LEISURE and SIMCERE PHARMAC 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 SIMCERE PHARMAC. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARISTOCRAT LEISURE and SIMCERE PHARMAC.

Diversification Opportunities for ARISTOCRAT LEISURE and SIMCERE PHARMAC

0.68

Correlation Coefficient

ARISTOCRAT LEISURE  SIMCERE PHARMAC

Poor diversification

The 3 months correlation between ARISTOCRAT and SIMCERE is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding ARISTOCRAT LEISURE and SIMCERE PHARMAC GRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIMCERE PHARMAC GRP 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 SIMCERE PHARMAC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIMCERE PHARMAC GRP has no effect on the direction of ARISTOCRAT LEISURE i.e., ARISTOCRAT LEISURE and SIMCERE PHARMAC go up and down completely randomly.

Pair Corralation between ARISTOCRAT LEISURE and SIMCERE PHARMAC

Assuming the 90 days trading horizon ARISTOCRAT LEISURE is expected to generate 1.03 times less return on investment than SIMCERE PHARMAC. But when comparing it to its historical volatility, ARISTOCRAT LEISURE is 3.03 times less risky than SIMCERE PHARMAC. It trades about 0.43 of its potential returns per unit of risk. SIMCERE PHARMAC GRP is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  69.00  in SIMCERE PHARMAC GRP on September 5, 2024 and sell it today you would earn a total of  20.00  from holding SIMCERE PHARMAC GRP or generate 28.99% return on investment over 90 days.

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

ARISTOCRAT LEISURE  vs.  SIMCERE PHARMAC GRP

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.

SIMCERE PHARMAC GRP

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SIMCERE PHARMAC GRP are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, SIMCERE PHARMAC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ARISTOCRAT LEISURE and SIMCERE PHARMAC

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

The idea behind ARISTOCRAT LEISURE and SIMCERE PHARMAC GRP 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.