Correlation Between Australian Agricultural and Sea

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

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

Diversification Opportunities for Australian Agricultural and Sea

-0.01

Correlation Coefficient

Australian Agricultural  Sea

Good diversification

The 3 months correlation between Australian and Sea is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and Sea Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea Limited and Australian Agricultural 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 Australian Agricultural are associated (or correlated) with Sea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea Limited has no effect on the direction of Australian Agricultural i.e., Australian Agricultural and Sea go up and down completely randomly.

Pair Corralation between Australian Agricultural and Sea

Assuming the 90 days horizon Australian Agricultural is expected to generate 21.68 times less return on investment than Sea. But when comparing it to its historical volatility, Australian Agricultural is 1.41 times less risky than Sea. It trades about 0.02 of its potential returns per unit of risk. Sea Limited is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  7,020  in Sea Limited on September 4, 2024 and sell it today you would earn a total of  3,740  from holding Sea Limited or generate 53.28% return on investment over 90 days.

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

Australian Agricultural  vs.  Sea Limited

Australian Agricultural

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Australian Agricultural are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Australian Agricultural is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Sea Limited

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sea Limited are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sea reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Australian Agricultural and Sea

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

The idea behind Australian Agricultural and Sea 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..