Correlation Between Aristocrat Leisure and Medical Developments

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

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

Diversification Opportunities for Aristocrat Leisure and Medical Developments

-0.22

Correlation Coefficient

Aristocrat Leisure  Medical Developments

Very good diversification

The 3 months correlation between Aristocrat and Medical is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Aristocrat Leisure and Medical Developments Internati in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medical Developments 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 Medical Developments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medical Developments has no effect on the direction of Aristocrat Leisure i.e., Aristocrat Leisure and Medical Developments go up and down completely randomly.

Pair Corralation between Aristocrat Leisure and Medical Developments

Assuming the 90 days trading horizon Aristocrat Leisure is expected to generate 0.45 times more return on investment than Medical Developments. However, Aristocrat Leisure is 2.21 times less risky than Medical Developments. It trades about 0.29 of its potential returns per unit of risk. Medical Developments International is currently generating about -0.04 per unit of risk. If you would invest  5,407  in Aristocrat Leisure on September 2, 2024 and sell it today you would earn a total of  1,368  from holding Aristocrat Leisure or generate 25.3% 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.  Medical Developments Internati

Aristocrat Leisure

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aristocrat Leisure are ranked lower than 22 (%) 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.

Medical Developments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medical Developments International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic 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 Medical Developments

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

The idea behind Aristocrat Leisure and Medical Developments International 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.