Correlation Between AUST AGRICULTURAL and Nufarm

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

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

Diversification Opportunities for AUST AGRICULTURAL and Nufarm

0.4

Correlation Coefficient

AUST AGRICULTURAL  Nufarm

Very weak diversification

The 3 months correlation between AUST and Nufarm is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding AUST AGRICULTURAL and Nufarm Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nufarm Limited and AUST 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 AUST AGRICULTURAL are associated (or correlated) with Nufarm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nufarm Limited has no effect on the direction of AUST AGRICULTURAL i.e., AUST AGRICULTURAL and Nufarm go up and down completely randomly.

Pair Corralation between AUST AGRICULTURAL and Nufarm

Assuming the 90 days trading horizon AUST AGRICULTURAL is expected to generate 0.56 times more return on investment than Nufarm. However, AUST AGRICULTURAL is 1.79 times less risky than Nufarm. It trades about -0.08 of its potential returns per unit of risk. Nufarm Limited is currently generating about -0.1 per unit of risk. If you would invest  87.00  in AUST AGRICULTURAL on September 26, 2024 and sell it today you would lose (5.00) from holding AUST AGRICULTURAL or give up 5.75% of portfolio value over 90 days.

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

AUST AGRICULTURAL  vs.  Nufarm Limited

AUST AGRICULTURAL

Risk-Adjusted Performance

0 of 100

Very Weak

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

Nufarm Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nufarm Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with AUST AGRICULTURAL and Nufarm

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

The idea behind AUST AGRICULTURAL and Nufarm 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.

Check out your portfolio center.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.