Correlation Between Aristocrat Leisure and Mayfield Childcare

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

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

Diversification Opportunities for Aristocrat Leisure and Mayfield Childcare

-0.38

Correlation Coefficient

Aristocrat Leisure  Mayfield Childcare

Very good diversification

The 3 months correlation between Aristocrat and Mayfield is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Aristocrat Leisure and Mayfield Childcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mayfield Childcare 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 Mayfield Childcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mayfield Childcare has no effect on the direction of Aristocrat Leisure i.e., Aristocrat Leisure and Mayfield Childcare go up and down completely randomly.

Pair Corralation between Aristocrat Leisure and Mayfield Childcare

Assuming the 90 days trading horizon Aristocrat Leisure is expected to generate 0.68 times more return on investment than Mayfield Childcare. However, Aristocrat Leisure is 1.47 times less risky than Mayfield Childcare. It trades about 0.23 of its potential returns per unit of risk. Mayfield Childcare is currently generating about -0.09 per unit of risk. If you would invest  5,701  in Aristocrat Leisure on September 19, 2024 and sell it today you would earn a total of  1,224  from holding Aristocrat Leisure or generate 21.47% return on investment over 90 days.

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

Aristocrat Leisure  vs.  Mayfield Childcare

Aristocrat Leisure

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aristocrat Leisure are ranked lower than 18 (%) 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.

Mayfield Childcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mayfield Childcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Aristocrat Leisure and Mayfield Childcare

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

The idea behind Aristocrat Leisure and Mayfield Childcare 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.