Correlation Between Aristocrat Leisure and Energy Technologies

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

By analyzing existing cross correlation between Aristocrat Leisure and Energy Technologies Limited, you can compare the effects of market volatilities on Aristocrat Leisure and Energy Technologies 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 Energy Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aristocrat Leisure and Energy Technologies.

Diversification Opportunities for Aristocrat Leisure and Energy Technologies

-0.6

Correlation Coefficient

Aristocrat Leisure  Energy Technologies

Excellent diversification

The 3 months correlation between Aristocrat and Energy is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Aristocrat Leisure and Energy Technologies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Technologies 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 Energy Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Technologies has no effect on the direction of Aristocrat Leisure i.e., Aristocrat Leisure and Energy Technologies go up and down completely randomly.

Pair Corralation between Aristocrat Leisure and Energy Technologies

Assuming the 90 days trading horizon Aristocrat Leisure is expected to generate 0.52 times more return on investment than Energy Technologies. However, Aristocrat Leisure is 1.93 times less risky than Energy Technologies. It trades about 0.21 of its potential returns per unit of risk. Energy Technologies Limited is currently generating about -0.01 per unit of risk. If you would invest  5,726  in Aristocrat Leisure on September 20, 2024 and sell it today you would earn a total of  1,143  from holding Aristocrat Leisure or generate 19.96% return on investment over 90 days.

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

Aristocrat Leisure  vs.  Energy Technologies Limited

Aristocrat Leisure

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aristocrat Leisure are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, Aristocrat Leisure unveiled solid returns over the last few months and may actually be approaching a breakup point.

Energy Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Aristocrat Leisure and Energy Technologies

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

The idea behind Aristocrat Leisure and Energy Technologies Limited 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.