Correlation Between National Australia and Collins Foods

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

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

Diversification Opportunities for National Australia and Collins Foods

0.75

Correlation Coefficient

National Australia  Collins Foods

Poor diversification

The 3 months correlation between National and Collins is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding National Australia Bank and Collins Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Collins Foods and National 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 National Australia Bank are associated (or correlated) with Collins Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Collins Foods has no effect on the direction of National Australia i.e., National Australia and Collins Foods go up and down completely randomly.

Pair Corralation between National Australia and Collins Foods

Assuming the 90 days trading horizon National Australia Bank is expected to generate 0.14 times more return on investment than Collins Foods. However, National Australia Bank is 7.06 times less risky than Collins Foods. It trades about 0.1 of its potential returns per unit of risk. Collins Foods is currently generating about 0.01 per unit of risk. If you would invest  9,547  in National Australia Bank on August 31, 2024 and sell it today you would earn a total of  1,078  from holding National Australia Bank or generate 11.29% return on investment over 90 days.

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

National Australia Bank  vs.  Collins Foods

National Australia Bank

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Australia Bank are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, National Australia is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Collins Foods

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Collins Foods are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Collins Foods may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with National Australia and Collins Foods

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

The idea behind National Australia Bank and Collins Foods 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.