Correlation Between Australian Mines and Toro Energy

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

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

Diversification Opportunities for Australian Mines and Toro Energy

0.3

Correlation Coefficient

Australian Mines  Toro Energy

Weak diversification

The 3 months correlation between Australian and Toro is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Australian Mines Limited and Toro Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toro Energy Limited and Australian Mines 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 Mines Limited are associated (or correlated) with Toro Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toro Energy Limited has no effect on the direction of Australian Mines i.e., Australian Mines and Toro Energy go up and down completely randomly.

Pair Corralation between Australian Mines and Toro Energy

Assuming the 90 days horizon Australian Mines Limited is expected to generate 1.09 times more return on investment than Toro Energy. However, Australian Mines is 1.09 times more volatile than Toro Energy Limited. It trades about 0.1 of its potential returns per unit of risk. Toro Energy Limited is currently generating about 0.07 per unit of risk. If you would invest  0.11  in Australian Mines Limited on February 23, 2024 and sell it today you would earn a total of  0.89  from holding Australian Mines Limited or generate 809.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.8%
Values	Daily Returns

Australian Mines Limited  vs.  Toro Energy Limited

Australian Mines

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Australian Mines Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Australian Mines reported solid returns over the last few months and may actually be approaching a breakup point.

Toro Energy Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toro Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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 Australian Mines and Toro Energy

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

The idea behind Australian Mines Limited and Toro Energy 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.

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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 Money Managers module to screen money managers from public funds and ETFs managed around the world.