Correlation Between Australian United and Eroad

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

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

Diversification Opportunities for Australian United and Eroad

0.75

Correlation Coefficient

Australian United  Eroad

Poor diversification

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

Pair Corralation between Australian United and Eroad

Assuming the 90 days trading horizon Australian United is expected to generate 5.3 times less return on investment than Eroad. But when comparing it to its historical volatility, Australian United Investment is 5.49 times less risky than Eroad. It trades about 0.19 of its potential returns per unit of risk. Eroad is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  83.00  in Eroad on April 25, 2025 and sell it today you would earn a total of  42.00  from holding Eroad or generate 50.6% return on investment over 90 days.

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

Australian United Investment  vs.  Eroad

Australian United

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Australian United Investment are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Australian United may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Eroad

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eroad are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Eroad unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Australian United and Eroad

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

The idea behind Australian United Investment and Eroad 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.