Correlation Between Aristocrat Leisure and Inspired Entertainment

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

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

Diversification Opportunities for Aristocrat Leisure and Inspired Entertainment

0.11

Correlation Coefficient

Aristocrat Leisure  Inspired Entertainment

Average diversification

The 3 months correlation between Aristocrat and Inspired is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Aristocrat Leisure Limited and Inspired Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inspired Entertainment and Aristocrat Leisure 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 Aristocrat Leisure Limited are associated (or correlated) with Inspired Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inspired Entertainment has no effect on the direction of Aristocrat Leisure i.e., Aristocrat Leisure and Inspired Entertainment go up and down completely randomly.

Pair Corralation between Aristocrat Leisure and Inspired Entertainment

Assuming the 90 days horizon Aristocrat Leisure Limited is expected to generate 0.63 times more return on investment than Inspired Entertainment. However, Aristocrat Leisure Limited is 1.59 times less risky than Inspired Entertainment. It trades about 0.03 of its potential returns per unit of risk. Inspired Entertainment is currently generating about 0.01 per unit of risk. If you would invest  2,330  in Aristocrat Leisure Limited on January 24, 2024 and sell it today you would earn a total of  359.00  from holding Aristocrat Leisure Limited or generate 15.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	84.44%
Values	Daily Returns

Aristocrat Leisure Limited  vs.  Inspired Entertainment

Aristocrat Leisure

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aristocrat Leisure Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Aristocrat Leisure is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Inspired Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inspired Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Inspired Entertainment is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Aristocrat Leisure and Inspired Entertainment

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

The idea behind Aristocrat Leisure Limited and Inspired Entertainment 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.