Correlation Between Southern Cross and Aeris Environmental

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

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

Diversification Opportunities for Southern Cross and Aeris Environmental

0.54

Correlation Coefficient

Southern Cross  Aeris Environmental

Very weak diversification

The 3 months correlation between Southern and Aeris is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Southern Cross Gold and Aeris Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeris Environmental and Southern Cross 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 Southern Cross Gold are associated (or correlated) with Aeris Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeris Environmental has no effect on the direction of Southern Cross i.e., Southern Cross and Aeris Environmental go up and down completely randomly.

Pair Corralation between Southern Cross and Aeris Environmental

Assuming the 90 days trading horizon Southern Cross Gold is expected to generate 1.14 times more return on investment than Aeris Environmental. However, Southern Cross is 1.14 times more volatile than Aeris Environmental. It trades about 0.13 of its potential returns per unit of risk. Aeris Environmental is currently generating about 0.09 per unit of risk. If you would invest  275.00  in Southern Cross Gold on September 13, 2024 and sell it today you would earn a total of  102.00  from holding Southern Cross Gold or generate 37.09% return on investment over 90 days.

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

Southern Cross Gold  vs.  Aeris Environmental

Southern Cross Gold

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Cross Gold are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Southern Cross unveiled solid returns over the last few months and may actually be approaching a breakup point.

Aeris Environmental

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aeris Environmental are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Aeris Environmental unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southern Cross and Aeris Environmental

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

The idea behind Southern Cross Gold and Aeris Environmental 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.