Correlation Between Australia and Nsx

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

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

Diversification Opportunities for Australia and Nsx

0.2

Correlation Coefficient

Australia  Nsx

Modest diversification

The 3 months correlation between Australia and Nsx is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Australia and New and Nsx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nsx and Australia 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 Australia and New are associated (or correlated) with Nsx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nsx has no effect on the direction of Australia i.e., Australia and Nsx go up and down completely randomly.

Pair Corralation between Australia and Nsx

Assuming the 90 days trading horizon Australia and New is expected to generate 0.45 times more return on investment than Nsx. However, Australia and New is 2.22 times less risky than Nsx. It trades about -0.35 of its potential returns per unit of risk. Nsx is currently generating about -0.22 per unit of risk. If you would invest  3,183  in Australia and New on September 24, 2024 and sell it today you would lose (323.00) from holding Australia and New or give up 10.15% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Australia and New  vs.  Nsx

Australia and New

Risk-Adjusted Performance

0 of 100

Very Weak

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

Nsx

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nsx are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Nsx unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Australia and Nsx

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

The idea behind Australia and New and Nsx 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.