Correlation Between Australian Agricultural and SalMar ASA

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

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

Diversification Opportunities for Australian Agricultural and SalMar ASA

0.12

Correlation Coefficient

Australian Agricultural  SalMar ASA

Average diversification

The 3 months correlation between Australian and SalMar is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and SalMar ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SalMar ASA 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 SalMar ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SalMar ASA has no effect on the direction of Australian Agricultural i.e., Australian Agricultural and SalMar ASA go up and down completely randomly.

Pair Corralation between Australian Agricultural and SalMar ASA

Assuming the 90 days horizon Australian Agricultural is expected to under-perform the SalMar ASA. In addition to that, Australian Agricultural is 1.01 times more volatile than SalMar ASA. It trades about -0.01 of its total potential returns per unit of risk. SalMar ASA is currently generating about 0.06 per unit of volatility. If you would invest  4,690  in SalMar ASA on August 31, 2024 and sell it today you would earn a total of  250.00  from holding SalMar ASA or generate 5.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Australian Agricultural  vs.  SalMar ASA

Australian Agricultural

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Australian Agricultural has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

SalMar ASA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SalMar ASA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, SalMar ASA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Australian Agricultural and SalMar ASA

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

The idea behind Australian Agricultural and SalMar ASA 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.